IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1132.html
   My bibliography  Save this paper

An analysis of repressed inflation in three transitional economies

Author

Listed:
  • Feltenstein, Andrew
  • Jiming Ha

Abstract

In centrally planned economies, domestic prices do not respond flexibly to market forces, so economic disequilibria - including repressed inflation - persist. The authors assess the extent of repressed inflation in Czechoslovakia, Poland, and Romania between 1980 and 1990. First, they develop a simultaneous equation model, which stipulates that the repressed inflation is caused by the difference in growth rate between households'money holdings and retail sales in the economy. Following are the model's basic assumptions: a stable demand for money function exists where the demand for real quasi-money depends on the level of real income and the expected rate of inflation; inflationary expectations are formed under an adaptive scheme in which expected inflation for the next period depends on the error made in predicting the current period's true inflation; the real stock of quasi-money balances adjusts to the desired level, after a time lag. The authors then derive a reduced-form equation on real quasi-money holdings, and estimate it with quarterly data for Czechoslovakia and Poland, and with annual data for Romania. Based on the estimated equation, they derive the true inflation rate for each economy. Finally, they determine the significance of the repressed inflation in each economy through statistical tests on parameters of the estimated equation. These are the authors'main findings: during 1980-90 in Czechoslovakia, repressed inflation was insignificant, the demand for money was mostly for transaction purposes, and inflationary expectations were almost myopic; in Poland, repressed inflation was significant but decreasing after 1987, and inflationary expectations adjusted fairly rapidly; and in Romania, repressed inflation was serious throughout the period, and inflationary expectations adjusted quite rapidly. This economic model needs to be refined and the data used need to be improved. But the paper's findings are broadly consistent with the results of most other studies.

Suggested Citation

  • Feltenstein, Andrew & Jiming Ha, 1993. "An analysis of repressed inflation in three transitional economies," Policy Research Working Paper Series 1132, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1132
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1993/04/01/000009265_3961004135150/Rendered/PDF/multi0page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Portes, Richard & Santorum, Anita, 1987. "Money and the consumption goods market in China," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 354-371, September.
    2. Feltenstein, Andrew & Ha, Jiming, 1991. "Measurement of repressed inflation in China : The lack of coordination between monetary policy and price controls," Journal of Development Economics, Elsevier, vol. 36(2), pages 279-294, October.
    3. Mr. Dimitri G Demekas & Mr. Mohsin S. Khan, 1991. "The Romanian Economic Reform Program," IMF Working Papers 1991/080, International Monetary Fund.
    4. International Monetary Fund, 1990. "Economic Reform and the Demand for Money in China," IMF Working Papers 1990/042, International Monetary Fund.
    5. Coricelli, Fabrizio & Rocha, Roberto de Rezende, 1991. "Stabilization programs in Eastern Europe : a comparative analysis of the Polish and Yugoslav programs of 1990," Policy Research Working Paper Series 732, The World Bank.
    6. Commander, Simon & Coricelli, Fabrizio, 1990. "The macroeconomics of price reform in socialist countries : a dynamic framework," Policy Research Working Paper Series 555, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Drabek, Zdenek & Janacek, Kamil & Tuma, Zdenek, 1993. "Inflation in Czechoslovakia, 1985-91," Policy Research Working Paper Series 1135, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yu, Qiao, 1997. "Economic Fluctuation, Macro Control, and Monetary Policy in the Transitional Chinese Economy," Journal of Comparative Economics, Elsevier, vol. 25(2), pages 180-195, October.
    2. Mookerjee, Rajen & Peebles, Gavin, 1998. "Endogenous money in China: Evidence and insights on recent policies," Journal of Asian Economics, Elsevier, vol. 9(1), pages 139-158.
    3. Hasan, Mohammad S., 1999. "Monetary Growth and Inflation in China: A Reexamination," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 669-685, December.
    4. Sylvie Guillaumont-Jeanneney & Ping Hua & Claude Jessua, 1996. "Politique du change et développement des exportations manufacturées en Chine," Revue Économique, Programme National Persée, vol. 47(3), pages 851-860.
    5. Andrew Feltenstein & Saleh M. Nsouli, 2003. ""Big Bang" Versus Gradualism in Economic Reforms: An Intertemporal Analysis with an Application to China," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 1-6.
    6. Jeffrey Zax, 2014. "Housing allocations, imputed rents and inequality in urban China," ERSA conference papers ersa14p1682, European Regional Science Association.
    7. Xu, Yingfeng, 1998. "Money Demand in China: A Disaggregate Approach," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 544-564, September.
    8. Michael Bruno, 1994. "Stabilization and Reform in Eastern Europe: A Preliminary Evaluation," NBER Chapters, in: The Transition in Eastern Europe, Volume 1, Country Studies, pages 19-50, National Bureau of Economic Research, Inc.
    9. Tsang, Shu-ki & Ma, Yue, 1997. "Simulating the impact of foreign capital in an open-economy macroeconomic model of China," Economic Modelling, Elsevier, vol. 14(3), pages 435-478, July.
    10. Koop, Gary & Osiewalski, Jacek & Steel, Mark F J, 2000. "A Stochastic Frontier Analysis of Output Level and Growth in Poland and Western Economies," Economic Change and Restructuring, Springer, vol. 33(3), pages 185-202.
    11. Alain de Crombrugghe & David Lipton, 1993. "The Government Budget and the Economic Transformation of Poland," WIDER Working Paper Series wp-1993-111, World Institute for Development Economic Research (UNU-WIDER).
    12. Bennett, John & Dixon, Huw David, 1995. "Macroeconomic equilibrium and reform in a transitional economy," European Economic Review, Elsevier, vol. 39(8), pages 1465-1485, October.
    13. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    14. Commander, Simon & Staehr, Karsten, 1991. "The determination of wages in socialist economies : some microfoundations," Policy Research Working Paper Series 713, The World Bank.
    15. repec:kap:iaecre:v:14:y:2008:i:1:p:36-47 is not listed on IDEAS
    16. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.
    17. Daniel Daianu, 1996. "Stabilization and exchange rate policy in Romania," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(1), pages 229-248, May.
    18. Austin, Darran & Ward, Bert & Dalziel, Paul, 2007. "The demand for money in China 1987-2004: A non-linear modelling approach," China Economic Review, Elsevier, vol. 18(2), pages 190-204.
    19. Aaron Mehrotra, 2008. "Demand for Money in Transition: Evidence from China’s Disinflation," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 14(1), pages 36-47, February.
    20. Chhibber, Ajay, 1991. "Africa's rising inflation : causes, consequences, and cures," Policy Research Working Paper Series 577, The World Bank.
    21. Salima Hamouche, 1993. "Contribution à l'étude du déséquilibre sur le marché algérien des biens de consommation," Économie et Prévision, Programme National Persée, vol. 108(2), pages 63-74.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1132. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.