Convergence in Transition Countries – Focus on Investment: Central and Eastern Europe, 1970–1996

Our data on investment in Central and Eastern European economies reveal that, though investment rates were typically high in the 1970s, the marginal efficiency of investment was low. Investment shares begun to decline in the 1980s, before the collapse of the communist system, but there was some recovery in most countries after transition. We use the Kalman filter framework to test for convergence in investment rates. We find some evidence of convergence in Central European countries – former Czechoslovakia, Poland and the countries of the former Yugoslavia. For the remainder of the socialist bloc, however, we were unable to isolate convergence in investment shares.     

The role of interest rates during the transition to a market economy

We construct a simple two period model of an economy in transition from being centrally planned to being market oriented. Using this model, we draw certain positive conclusions about economic policies that reduce distortions during the transition period. In particular, we focus on the role of interest rates, a market parameter that has previously been almost entirely ignored in planned economies. Using stylized data derived from Czechoslovakia, we show that increase in nominal interest rates can actually be welfare-improving by partially compensating for the distortions induced by the transition process. The model is sufficiently general to be applied to a number of transition economies, and we use the cases of Czechoslovakia, the USSR, and China as examples of some of the phenomena that we are trying to explain. We show that the model generates a constrained, suboptimal equilibrium. In particular, we see that raising interest rates during the transition period reduces repressed savings, brought about by shortages in the controlled market. An improvement in consumer utility can therefore be brought about.     

The Price-Wage Mechanism in Poland: An Endogenous Switching Model

This paper proposes a two-equation price-wage model that enables to test whether the inflationary pressure on wage rate is only present when the rate of inflation is greater than some threshold value. Since the likelihood function for this model is very nonstandard, we develop a small-sample Bayesian approach to estimate its parameters. Our empirical results for Poland, 1962–1993, give support to the hypothesis of the price- wage spiral with a positive threshold value of inflation.     

Is there aJ-curve for the economic transition from socialism to capitalism?

It is often assumed that the process of transition from socialism to capitalism involves a dislocation and disorganization of the economy in the early stages of the transition. Thus, it is argued, economic performance will at first worsen and then gradually improve as the new system takes hold. This paper argues that, based on evidence from Czechoslovakia, Hungary, and Poland, there is no evidence for such aJ-curve phenomenon. Using a simple macroeconomic model, we show that, in these three reforming countries, the decline in production can be explained by exogenous shocks to the balance of trade, to investments and to autonomous consumption. This finding also suggests that macroeconomic policy in these countries may be too restrictive to permit a recovery of employment and production.     

The Effect of Incomes Policies on Inflation in Bulgaria and Poland

Transition countries, and many other countries with incomplete markets, have faced long periods with both high inflation and unemployment. Policies to reduce inflation without high unemployment include incomes policies, which were widely employed in transition countries. This paper studies the effects of incomes policies on inflation in Bulgaria and Poland in 1990-1993. The actual policies, which were complex and changing, are examined. The policies do not appear well-designed in a technical sense to reduce inflation. A time-series analysis is made which includes standard determinants of inflation including past inflation, wage increases, exchange rate changes, and monetary changes, plus a dummy for incomes policies. The regressions are fairly successful in fitting standard factors that should influence inflation, particularly the exchange rate and unemployment in Bulgaria and wages and unemployment in Poland. They find a fairly substantial inflation-reducing effect from the Bulgarian policy but no significant results from the Polish policy.     

Economic and Sociological Correlates of Suicides: Multilevel Analysis of the Time Series Data in the United Kingdom

For the effects of social integration on suicides, there have been different and even contradictive conclusions. In this study, the selected economic and social risks of suicide for different age groups and genders in the United Kingdom were identified and the effects were estimated by the multilevel time series analyses. To our knowledge, there exist no previous studies that estimated a dynamic model of suicides on the time series data together with multilevel analysis and autoregressive distributed lags. The investigation indicated that unemployment rate, inflation rate, and divorce rate are all significantly and positively related to the national suicide rates in the United Kingdom from 1981 to 2011. Furthermore, the suicide rates of almost all groups above 40 years are significantly associated with the risk factors of unemployment and inflation rate, in comparison with the younger groups.     

通货膨胀目标制的内涵及在中国的检验

通货膨胀目标制是当今世界流行的一种货币政策制度.尽管学术界至今对通货膨胀目标制存在不同意见,但对这一制度的有关特征是有共识的,即要明确规定一个数量化的通货膨胀目标;货币政策操作应该有相当高的透明度;中央银行对通货膨胀目标的实现承担责任.此外,通货膨胀目标制是一个包括操作工具、操作目标、信息变量和最终目标在内的有关货币政策制定和实施的系统.本文构建了这一制度的模型框架,并用中国的数据检验了其适用性.结果表明,灵活通胀目标制规则在当前中国的货币政策实践中并不非常适合.     

Wage and Price Inflation in Poland in the Period of Transition: The Cointegration Analysis

The paper focuses on the long run relationships between wages, prices and labour productivity in the Polish economy by applying recent developments in the field of multivariate cointegration analysis. We followed modeling strategy which is suggested by Greenslade et al. (1999) and present all stages of the analysis which leads to the fully economically identified system of equations representing long run relationships. The investigation is based on the quarterly data from 1992.1 to 1999.2 which covers the period of transition of the Polish economy from the centrally planned system towards the market one. Basing on the empirical results we can argue that wages (costs) were one of the main forces driving inflation in Poland during that period. Also labor productivity proved to be stimulated by the increase of the real wages. On the other hand the hypothesis concerning the relationship between wages and unemployment was rejected by the data.     

Business surveys and inflation forecasting in China

We use business survey data collected by the People’s Bank of China for inflation forecasting. Some survey indicators lead to enhanced forecasting performance relative to the univariate benchmark model, especially for a period of moderate inflation. However, the estimated models do not do a good job of tracking the recent pickup in Chinese inflation, due to increases in food prices.     

Foreign direct investment and the volume of trade: the case of Poland

In this paper we study empirically the relationship between the volume of trade and foreign direct investment in Poland using the FDI augmented gravity equation derived from the modified Chamberlin–Heckscher–Ohlin model with multinational firms and complete specialization in production. We find that FDI contributes positively to the development of international trade between Poland and OECD countries, although the complete specialization C–H–O model with multinational firms does not find support in the data. In contrast, it seems that incomplete specialization H–O model better explains Poland’s trade with the OECD countries. The lack of support for the complete specialization model suggests that the vertical model of the multinational firm may not be appropriate for explaining trade and FDI patterns between Poland and the OECD countries. Therefore, other than labor cost reduction motives might explain the expansion of multinational firms’ activity in Poland. In the light of provided empirical evidence the fears of relocation of labor intensive assembly plants from the west to the east may not be fully justified.     

Market failure and stagflation: Some aspects of privatisation in Poland

The paper investigates causes of the stagflation phenomena which appeared in Poland in the period after the ‘shortageflation’, i.e. after February 1990. It is conjectured that one of the primary reasons for the appearance of the stagflation was substantial market uncertainty, which led to a market failure. The theoretical analysis is based on the Newbery-Stiglitz model of futures trading. This reveals that, in the presence of huge price variations a market is likely to fail if a substantial backwardation accompanies negative correlation between prices and quantities. The empirical evidence consists of testing market efficiency (weak and semi-strong forms) and the rational expectations hypothesis for the Polish consumption market and inflation in the period of shortageflation. It is found that the market survives the tests for weak efficiency but fails the test for semi-strong efficiency and rational expectations.     

The economic transformation of Eastern Europe: the case of Poland

This article identifies the main features of Poland's radical transition to capitalism-stabilization program, trade liberalization, and privatization reform. The ‘shock therapy’ adopted by Poland in 1991 is presented as the most effective approach, though not without political risk. In fact, the major threat to Poland's transition process is the emergence of well organized ‘interest groups’ putting increasing demand on the government to relax financial restrictions and re-open large-scale subsidization. These political pressures have already caused a slowdown in the privatization program, so that there is a possibility of the renewal of rapid inflation. Several methods for accelerated privatization, including the distribution of vouchers and setting up investment funds to manage portfolios of shares, are discussed in detail.     

South Africa’s inflation persistence: a quantile regression framework

We study inflation persistence in South Africa using a quantile regression approach (We would like to thank two anonymous referees for many helpful comments. However, any remaining errors are solely ours). We control for structural breaks using a quantile structural break test on a long span of inflation data. Our study includes persistence estimates for headline and core inflation—thus controlling for possible biases emanating from extremely volatile periods. South Africa’s inflation persistence is lowest during the inflation targeting period regardless of the inflation measure. Inflation persistence is also constant over all quantiles during the inflation targeting regime for core inflation. There is a difference between the estimates from headline and core—headline persistence increases in relation to higher quantiles. Thus energy and food price shocks might de-stabilise inflation altogether.     

Inflation and the transition to a mixed economy: Can it work?

This paper reviews a number of possible scenarios for introducing a market element into a centrally planned economy, and analyses the financial relationships between the planned and the market sectors of the resulting mixed economy. It is argued that repressed inflation with some degree of excess demand and administrative price-control, is not neutral, but has distribution effects which greatly ameliorate the financial position of the state in a mixed economy in which the banking sector is still part of the state-controlled sector.     

A Stochastic Frontier Analysis of Output Level and Growth in Poland and Western Economies

This paper uses Bayesian stochastic frontier methods to measure the productivity gap between Poland and Western countries that existed before the beginning of the main Polish economic reform. Using data for 20 Western economies, Poland and Yugoslavia (1980–1990) we estimate a translog stochastic frontier and make inference about individual efficiencies. Following the methodology proposed in our earlier work, we also decompose output growth into technical, efficiency and input changes and examine patterns of growth in the period under consideration.     

Exchange rate, inflation and unemployment in East European economies: the case of Poland and Hungary*

The aim of the paper is to model the impact of exchange rate on both inflation and unemployment variables in economies which are characterized by important structural changes, i.e. a transition phase moving from centralized economies towards market economies. This phenomenon, which is common to the East European countries, stressed different effects both for what concerns the behaviour of economic agents and for what concerns fiscal and monetary measures adopted by governments and aiming to keep under control the inflation–unemployment trade off. Time series relationships between these variables are investigated within an econometric model. Economic theory and the available data on the hypothetically relevant variables, along with the consideration of the main facts occurred in the period under study, characterize our information set. It is found that single equation analysis yields inefficient inference relative to the whole system analysis, and important structural changes are detected which reflect possible breaks in the structure of the economic system along with a change in economic policy.     

Polish Stabilization: What can we learn from the I(2) Cointegration Analysis?

This paper investigates an array of nominal systems for the Polish economy, of domestic price level, import prices, exchange rates, money stock, nominal wages, and real output, and conducts I(1) and I(2) cointegration analyses. Post-stabilization monthly data are used, 1991:5-1999:12. A test for the presence of a price-wage spiral is performed, and the stabilization package is compared to its realization. The long-run homogeneity hypothesis, the impact of monetary and incomes policies, and of external sector variables on long and medium run price development are studied. It is found that in Poland, contrary to some earlier studies, the external sector is not important for the long run price development. On the contrary, very strong evidence is found of the cost-push inflation.     

A Novel End to the Big Inflation in China in 1950*

The Chinese inflation of 1949-1950 was fueled by large budget deficits but was ended in March 1950 before significant deficit reduction occurred. We discuss the fiscal strains that gave rise to this inflation and consider the role played by early Communist market-based anti-inflationary measures such as the 'economic warfare' against speculators conducted by the government's state trading companies. While later monetary and fiscal tightening sustained the stabilization achieved in March – at considerable cost to the real economy – the Chinese experience seems to confirm that there is more to inflation stabilization than fiscal balance alone.     

Nonlinear convergence in Asian interest and inflation rates: evidence from Asian countries

We examine the dynamics of convergence in seven Asian countries for nominal and real interest rates, and inflation rates. We test for convergence relative to the U.S. and Japan, using quarterly data 1973:2–2011:3, employing nonlinear unit root tests. The linearity test shows evidence of nonlinearity in all the cases. In most cases, we find evidence of logistic smooth transition autoregression-type non-linearity. Moreover, nonlinear unit root tests reveal evidence of nonlinear stationary nominal and real interest rates and inflation differentials in all cases. We interpret these results as convergence in inflation rates and real and nominal interest rates.     

Differential inflation,Phillips curves,and price competitiveness in a new euro-member country

This article analyzes the inflation process before and after a new country with a middle-income joined the eurozone. It starts with comparative price level gaps in the European single market and with a reformulated basic macroeconomic model for a country adopting the euro. The inflation process in Slovenia is analyzed with the Phillips curve. The Phillips curve before adoption of the euro is a classical equation with the NAIRU and the nominal exchange rate as a control variable. It was expected that the Phillips curve would have to be modified after the euro was adopted. The Phillips curve after the euro was adopted should take into account the initial comparative price level gap, the law of one price, and the Balassa effect. The result is higher differential inflation; that is, national inflation is higher compared with the rate in the eurozone. Differential inflation may have a detrimental effect on export-driven catch-up growth. Instruments for taming inflationary pressure could include a higher unemployment rate and lower growth of labour unit costs.