Relative Prices and Inflation in Poland 1989-1997

The paper is organized as follows: Section 2 discusses briefly two main groups of theories that link inflation and relative price variability and provides a sketch of a survey of the literature. Section 3 takes on Ball and Mankiw's models predicting the causality from relative price variability to inflation and discusses it in more detail. Section 4 provides a brief background of the factors underlying Polish relative price variability and empirical evidence on relative price behavior in Poland. The theoretical model as well as obtained regression results are discussed in section 5. Section 6 takes a closer look at relative price changes on a cumulative basis and section 7 introduces the Cukierman and Leiderman model of price controls with its policy-related implications. Finally, section 8 concludes with a summary of results, conclusions and a sketch of possible policy recommendation