Monetary policy in transitional economies.

These essays look at determinants of inflation and policies to control it at different stages of transition. It attempts to determine what factors have shaped the inflationary process, how successful were the policies adopted to control inflation, and what policy conclusions can be drawn from the experience of transitional economies. The first paper analyzes central bank independence in transitional economies, regarded as key for a successful monetary policy making. The results show that the central bank independence started to influence inflation only after the initial transitional shocks. The next two papers analyze monetary transmission mechanisms in less advanced economies, choosing Georgia and Romania as examples. The papers estimate structural models of inflation. The results show that, in the case of Romania, inflation was driven by a monetary expansion. Interactions between real and monetary developments were limited when inflation was high. In Georgia, where the dichotomy between the real and monetary sectors is also evident in the data, the tight control over the exchange rate was crucial for maintaining a low-inflation equilibrium. The third paper focuses on inflation in advanced transitional economies, analyzing transmission mechanisms and assessing the implementation of inflation targeting in the Czech Republic and Poland. The results show that the exchange rate has played a significant role in the transmission mechanism, suggesting that the behavior of this variable should be carefully watched even under an inflation targeting regime. The last paper in the thesis analyzes the credibility of inflation targets, which is the main factor affecting the costs of disinflation under the inflation targeting framework. The paper attempts to identify to what extent inflationary expectations in Poland were guided by announcements of the targets. The results show that the credibility of the targets increased after the introduction of inflation targeting, but dropped quickly after the target was missed

Credibility of Inflation Targets in Poland

This paper empirically investigates credibility of inflation targets in Poland. It proposes a new methodology to estimate the impact of policy announcements on survey-based inflationary expectations. Credibility of inflation targets in Poland have been high – the public seems to have attached greater weight to policy announcements than to past macroeconomic developments, particularly after the formal introduction of inflation targeting. The proposed Bayesian approach makes efficient use of available information to provide an intuitive, time-varying measures of credibility. Comparative Economic Studies (2008) 50, 494–510. doi:10.1057/ces.2008.25