IMF Working Papers

Drivers of Inflation in the Caucasus and Central Asia

By Maria Atamanchuk, Alejandro Hajdenberg, Dalia Kadissi, Giulio Lisi, Nasir H Rao

January 10, 2025

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Format: Chicago

Maria Atamanchuk, Alejandro Hajdenberg, Dalia Kadissi, Giulio Lisi, and Nasir H Rao. "Drivers of Inflation in the Caucasus and Central Asia", IMF Working Papers 2025, 003 (2025), accessed January 11, 2025, https://doi.org/10.5089/9798400296031.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Food prices, Inflation, Prices

Keywords: Caucasus and Central Asia, Central Asia and the Caucasus, Food prices, Global, Inflation, Inflation, Local projection method, Monetary policy, Panel VAR, Phillips curve

Publication Details

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