Money-based underlying inflation measure for Russia: a structural dynamic factor model approach

Elena Deryugina and Alexey Ponomarenko

Empirical Economics, 2017, vol. 53, issue 2, No 4, 457 pages

Abstract: Abstract We estimate a dynamic factor model for the cross section of monetary and price indicators. We extract the common part of the dataset’s fluctuations and decompose it into structural shocks. We argue that one of the shocks identified has empirical properties (in terms of impulse response functions) that are fully in line with the theoretically expected relationship between money growth and inflation, confirming that the process identified has the capacity for economic interpretation. Based on this finding, we decompose recent inflationary developments in Russia into those that are associated with changes in monetary stance and other shorter-lived shocks.

Keywords: Monetary aggregates; Inflation; Dynamic factor model; Transition countries (search for similar items in EconPapers)
JEL-codes: C22 E31 E51 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s00181-016-1125-1

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