Inflation Dynamics in Mongolia: Understanding the Roller Coaster

Julia Bersch, Steven Barnett and Yasuhisa Ojima

No 2012/192, IMF Working Papers from International Monetary Fund

Abstract: Inflation in Mongolia resembles a roller coaster ride with sharp rises and steep drops. Understanding why is critical for formulating and assessing monetary policy. Food prices are found to be a key driver of inflation, and, not surprising given Mongolia’s geography, are determined primarily by local supply conditions, highly seasonal, and subject to large but short-lived shocks (usually weather related). Nonetheless, demand factors are also found to be significant in explaining price movements and empirical evidence suggests that a 10 percent increase in government wages, for example, would push up underlying inflation by 1 percentage point. So, while inflation will remain volatile due to agricultural shocks, there is space for macroeconomic stabilization policy to help reduce inflation volatility.

Keywords: WP; price; food price inflation; supply shock; Mongolia; Inflation; underlying inflation; inflation expectation; food inflation; inflationary spiral; inflation in Mongolia; inflation dynamics; Food prices; Consumer price indexes; Supply shocks; Price controls; Global (search for similar items in EconPapers)
Pages: 21
Date: 2012-07-01
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Citations: View citations in EconPapers (4)

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