The Determinants of the Inflation Rate in Transition Countries

A Panel Data Analysis

Abstract

The theoretical literature points out that inflation targeting and the exchange rate peg have the advantage of lowering the inflation rate. Controlling for the other relevant variables, this paper estimates the effects of these policies on the inflation rate in 20 transition countries during 1995-2003 by using regressions on panel data. The main finding is that inflation targeting and the exchange rate peg appear to have been effective in lowering inflation rate even in transition countries.