| Inflation has proven to be a major problem in economy transitioning from central planning to free market. We theoretically determine and empirically examine the key factors affecting inflation in transition countries. Our paper makes use of the International Monetary Fund, World Bank, and European Bank for Reconstruction and Development panel data within the period of 1998-2010 to provide cross-sectional and time series, comparative analysis of macroeconomic factors in 22 transition countries with distinct economic development levels. The main conclusion of this research is that following the methodology of classifying the transition countries into groups based on their economic and political distinctions no unique model may be equally applicable to all the countries in the period of transition to market economy. However, we have noted a trend that the first group of countries with similar explanatory variables falls under the group identified as high inflation transition countries, while the second group with the combination of similar independent variables correspond to the group of low inflation countries. Our conclusions rest on the findings peculiar separately to low and to high inflation countries. |
