The effect of incomes policies on inflation in Bulgaria and Poland

Transition countries, and many other countries with incomplete markets, hav e faced long periods with both high inflation and unemployment. Policies to reduce inflation without high unemployment include incomes policies, which were widely employed in transition countries. This paper studies the effec ts of incomes policies on inflation in Bulgaria and Poland in 1990-1993. Th e actual policies, which were complex and changing, are examined. The polic ies do not appear well-designed in a technical sense to reduce inflation. A time-series analysis is made which includes standard determinants of infl ation including past inflation, wage increases, exchange rate changes, and monetary changes, plus a dummy for incomes policies. The regressions are fa irly successful in fitting standard factors that should influence inflation , particularly the exchange rate and unemployment in Bulgaria and wages and unemployment in Poland. They find a fairly substantial inflation-reducing effect from the Bulgarian policy but no significant results from the Polish policy.