Przemyslaw Wozniak RELATIVE PRICES AND INFLATION IN POLAND 1989-1997 (THE SPECIAL ROLE OF ADMINISTERED PRICE INCREASES)

This paper attempts to evaluate the magnitude of the influence of relative price shifts on the overall inflation in Poland during the period of 1989 to 1997. For that purpose, the theoretical model has been employed that predicts a positive relationship between variance and skewness of the distribution of relative price changes and the general inflation rate. Regressions performed in the framework controlling for various shocks revealed that significant relative price changes and the domination of the adjustment process by few large increases produce substantial upward inflationary pressures. Additionally, growth in money and wages were confirmed to fuel inflation and real exchange appreciation to lower it. Analyzing relative price changes on a cumulative basis revealed that utilities and other sectors controlled by the government have registered biggest relative increases. Considering that the adjustment process of numerous controlled prices is not complete, the paper concludes that (provided the political costs allow) future administered increases should be frequent and moderate to avoid large relative price shifts which were proven to raise inflation. of the Wilfrid Laurier University (Canada), Wojciech Maciejewski of Warsaw University, Witold Orlowski of the Independent Center of Economic Studies (Warsaw).