THE VOLATILE RELATIONSHIP BETWEEN DEFICITS AND INFLATION IN UKRAINE, 1992-1996

This paper compares the annual average of inflation in Ukraine, from 1 992 to 1996, with its steady-state tendency each year. The steady-stat e tendency is, in turn, computed from data on monetary velocity and on the proportion of the total public deficit financed by domestic monet ary emissions. Velocity is that of the base of the inflation tax in th e steady-state, namely household M2 plus a fraction of enterprise M2. The use of this concept rather than high-powered money corresponds to the public and quasi-public nature of most commercial banks and many l arge and medium-sized enterprises until 1996. The demonstrated rough c orrespondence between actual inflation and calculated, steady-state in flation confirms the validity of the underlying monetary model.