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SPP 282

Title: WHAT IS THE DEMAND FOR PRICE STABILITY IN POST-COMMUNIST COUNTRIES?
 
Author: Professor Richard Rose
 
Description: Avoiding inflation and unemployment are two important goals of economic policy; they can also be competing, requiring a trade off between them. On the supply side, central banks are prepared to give priority to stable prices. But what about the demand side? A philosopher-king model assumes that economists can decide this, and a corporatist model that bargaining among leaders of economic institutions can decide. But a populist electoral model posits that public opinion should decide. But what do the people want? The first aim of this paper is to present empirical survey evidence from the New Democracies Barometer about the public's priority for acting on inflation as against unemployment in nine post-Communist countries of Central and Eastern Europe from the Czech Republic to Ukraine. In every country surveyed the population is divided, with the majority consistently giving priority to stable prices. Since individuals exposed to the same national inflation rate react differently, the paper looks at alternative micro-economic, political and social explanations accounting for these differences. It finds that age and experience in the labour market, plus political values, are the most important influences; the influence on attitudes of national macroeconomic conditions is signficant but declining. Comparison with Britain, where inflation is low and unemployment historically high, shows concern with inflation is more important in a market economy too, and that age is also a major influence, with older people outside the labour market most sensitive to inflation.

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Postal Address:    CSPP Publications, University of Strathclyde, Glasgow, G1 1XQ, UK

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CSPP School of Government & Public Policy U. of Strathclyde Glasgow G1 1XQ Scotland
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