Optimal Inflation in Russia: Theory and Practice

Оптимальная инфляция в России: теория и практика

Sergey Drobyshevsky, Pavel Trunin, Elena Sinelnikova-Muryleva, Makeeva, Natalja V. (Макеева, Наталья) () and Grebenkina, Alina M. (Гребенкина, Алина) ()
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Makeeva, Natalja V. (Макеева, Наталья): Russian Pre­sidential Academy of National Economy and Public Administration
Grebenkina, Alina M. (Гребенкина, Алина): Russian Pre­sidential Academy of National Economy and Public Administration, Lomonosov Moscow State University

Ekonomicheskaya Politika / Economic Policy, 2020, vol. 4, 8-29

Abstract: The article provides a comprehensive analysis of optimality of the Bank of Russia’s inflation target. It considers the theoretical framework of optimal inflation, international practice of inflation target setting, and econometric estimates. The paper summarizes the theoretical mechanisms of optimality of zero or positive inflation and concludes that there are a significant number of mechanisms leading to optimality of positive inflation in the literature. Further, the countries’ experience of inflation targeting is analyzed, and the value of the inflation target and the frequency of its revision in Russia, developed countries and emerging market economies are compared. The article also provides the authors’ estimates of optimal inflation based on the application of the panel threshold regression method for four groups of countries, including Russia, for the period 1990–2018: the largest emerging market economies; emerging market economies with export as a key source of income; post-Soviet countries; and countries of Central and Eastern Europe. The study provides some empirical evidence in favor of the optimal inflation rate varying from 3.5% to 4% for homogeneous samples of countries, including Russia. The results also show that low inflation (up to the threshold level equal to the inflation target in Russia) is associated with economic growth. The study concludes that the current inflation target in Russia is valid and provides some suggestions regarding further improvements of inflation targeting policy in Russia.

Keywords: optimal inflation; monetary policy; panel threshold regression; countries comparative analysis (search for similar items in EconPapers)
JEL-codes: C23 E31 E52 O57 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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