Drivers of Inflation in the Caucasus and Central Asia

Maria Atamanchuk, Alejandro Hajdenberg, Dalia Kadissi, Giulio Lisi and Nasir Rao

No 2025/003, IMF Working Papers from International Monetary Fund

Abstract: In parallel with global developments, inflation in the Central Asia and Caucasus (CCA) has exhibited large swings in recent years. This paper investigates inflation dynamics in the CCA and its main drivers and derives conclusions that can inform policymaking. The analysis is based on three empirical approaches. Inflation drivers and its dynamics are investigated through the estimation of a Phillips curve augmented with foreign factors and a panel vector autoregression. The paper also assesses the role of monetary policy in steering inflation outcomes by estimating a local projection model. The paper finds that external factors play a major role in determining CCA inflation dynamics, although domestic factors (e.g., demand conditions, expectations) also contribute. Monetary policy is found to have a statistically significant effect on inflation, including by moderating the impact of external drivers. The findings point to the need to continue strengthening policy frameworks to steer expectations and improve the effectiveness of monetary policy, while establishing adequate social safety nets to cushion the impact from global shocks.

Keywords: Inflation; Caucasus and Central Asia; Phillips curve; panel VAR; local projection method; monetary policy; CCA inflation dynamics; inflation driver; Phillips Curve estimation; inflation development; inflation outcome; Food prices; Output gap; Nominal effective exchange rate; Oil prices; Global; Central Asia and the Caucasus (search for similar items in EconPapers)
Pages: 39
Date: 2025-01-10
New Economics Papers: this item is included in nep-cba, nep-cis and nep-mon
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