Article

 

The inflation and productivity relationship in Poland (p.11-33)

by

Evangelia Papapetrou, University of Athens

Keywords : Transition economies, inflation, productivity, time series analysis

JEL classification : P20, E31, J24, C32

Abstract

Poland belongs to the most advanced group of transition economies. Poland has succeeded in stabilizing its economy, yet inflation has proven resilient. This paper examines the causality issue, in a Granger-temporal causal sense, between price level and productivity in a bivariate and multivariate context in Poland over the period 1991:I-1998:IV. The empirical results suggest that a bivariate relationship between inflation and productivity is spurious. When we control for fluctuations of monetary policy on the bivariate relationship between price level and productivity the evidence suggests that Grangercausation must exist in at least one direction. Vector error-correction model estimation shows that productivity growth and inflation are econometrically endogenous variables and bi-directional causality from inflation to productivity growth and vice versa may exist.