Is Poland Ready for Inflation Targeting?

Monetary policymakers in advanced transition economies such as Poland are increasingly interested in how inflation responds to changes in policy instruments and other economic forces. In this paper, measures of underlying CPI inflation based upon optimal trimming concepts are developed. The sensitivity of these CPI measures to changes in a set of 25 policy and economic variables is then studied via Granger causality tests and impulse responses and a multivariate model of CPI inflation developed. The results show that a core set of variables characterize one-period-ahead underlying inflation moderately well but that statistical linkages are not yet robust.
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Volume/Issue: Volume 1999 Issue 041
Publication date: March 1999
ISBN: 9781451846089
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Business and Economics , Inflation , Economics- Macroeconomics , Money and Monetary Policy , WP , inflation measure , price , leading indicators , inflation , monetary policy , inflation targeting , robust statistics , administered prices , headline CPI inflation , inflation process , private-sector inflation , inflation concepts , inflation dynamics , producer price inflation , inflation development , price change , underlying inflation pattern , Consumer price indexes , Price controls , Price indexes , Central and Eastern Europe

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Summary

Monetary policymakers in advanced transition economies such as Poland are increasingly interested in how inflation responds to changes in policy instruments and other economic forces. In this paper, measures of underlying CPI inflation based upon optimal trimming concepts are developed. The sensitivity of these CPI measures to changes in a set of 25 policy and economic variables is then studied via Granger causality tests and impulse responses and a multivariate model of CPI inflation developed. The results show that a core set of variables characterize one-period-ahead underlying inflation moderately well but that statistical linkages are not yet robust.

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