Labour market and inflation relationship indicator

Evgeny Postnikov and Dmitry Orlov ()
Additional contact information
Dmitry Orlov: Bank of Russia, Russian Federation

No wps96, Bank of Russia Working Paper Series from Bank of Russia

Abstract: The labour market is closely connected to inflation processes, and is therefore a key factor to consider in monetary policy decisions. Russian regions differ substantially in terms of employment, wages, migration flows and the age structure of their population. Therefore, the effects of regional changes in the labour market on prices may be different. Since the Central bank’s inflation targeting policy is pursued nationwide, it is important for a regulator to factor in regional heterogeneity when assessing the impact of changes in the labour market on inflation growth. This paper brings forward a composite indicator of the contribution of labour market changes to inflation increase – the Labour Market Indicator (LMI). To capture regional heterogeneity in terms of market labour indicators, regions are grouped into four clusters with different social, demographic and economic characteristics. We make the case that the impact of unemployment on inflation can be described as slight or moderate in Russia. The calculated quarterly LMI values are overall consistent with the actual effect of the labour market on inflation processes over the entire time horizon under study, which suggests that the estimates are reliable. The important benefit of the LMI is that it is possible to interpret and allows to assess the future impact of labour market on inflation one quarter ahead of available statistical data – which helps make better informed monetary policy decisions.

Keywords: impact of the labour market on inflation; regional heterogeneity; clustering; principal component analysis; unemployment; wages; regression analysis. (search for similar items in EconPapers)
JEL-codes: C32 C38 E24 E31 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2022-09
New Economics Papers: this item is included in nep-cba, nep-cis, nep-lma, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cbr.ru/StaticHtml/File/140044/wp_96.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bkr:wpaper:wps96

Access Statistics for this paper

More papers in Bank of Russia Working Paper Series from Bank of Russia Contact information at EDIRC.
Bibliographic data for series maintained by BoR Research ( this e-mail address is bad, please contact ).