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Inflation in Tajikistan

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Author Info

  • Svetlana Vtyurina
  • Fahad Alturki

Abstract

This paper attempts to explain short- and long-term dynamics of-and forecast-inflation in Tajikistan using the Vector Error Correction Model (VECM) and Autoregressive Moving Average Model (ARMA). By analyzing different transmission channels through the VECM, we were able to evaluate their relative dominance, magnitude, and speed of transition to the equilibrium price level, with the view of identifying those policy tools that will enhance the effectiveness of monetary policy. We found that excess supply of broad money is inflationary in both the short and long term. The dynamic analysis also demonstrates that the exchange rate and international inflation have a strong impact on local prices. Available monetary instruments, such as the refinancing rate, have proven to be ineffective. Therefore, the Tajik monetary authority could greatly benefit from enhancing its monetary instruments toolkit, including by developing the interest rate channel, to improve its monetary policy execution and to achieve stable inflationary conditions.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/17.

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Length: 19
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/17

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Related research

Keywords: Dollarization; Banking sector; Credit; Economic forecasting; Economic models; Exchange rates; Interest rates; Reserve requirements; monetary policy; money demand; inflation; cointegration; error correction model; autoregressive moving average model; Tajikistan; money supply; monetary fund; monetary transmission; money growth; average inflation; monetary transmission mechanism; price level; actual inflation; aggregate demand; central bank; monetary policy transmission mechanism; liquidity management; demand for money; monetary base; foreign currency; foreign exchange; monetary policy framework; high inflation; national bank; monetary instruments; inflation dynamics; monetary authority; money transfer; monetary policy decisions; monetary conditions; contractionary monetary policy; gdp deflator; real interest rate; monetary transmission mechanisms; nominal interest rates; monetary aggregates; inflationary conditions; government securities; monetary policy implementation;

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References

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  1. John B. Taylor, 1995. "The monetary transmission mechanism: an empirical framework," Working Papers in Applied Economic Theory 95-07, Federal Reserve Bank of San Francisco.
  2. Oomes, Nienke & Ohnsorge, Franziska, 2005. "Money demand and inflation in dollarized economies: The case of Russia," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 462-483, September.
  3. Jean Boivin & Marc Giannoni, 2002. "Assessing changes in the monetary transmission mechanism: a VAR approach," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 97-111.
  4. Michael R. Wickens & Roberto Motto, 2001. "Estimating shocks and impulse response functions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 371-387.
  5. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
  6. Era Dabla-Norris & Holger Floerkemeier, 2006. "Transmission Mechanisms of Monetary Policy in Armenia," IMF Working Papers 06/248, International Monetary Fund.
  7. Franziska Ohnsorge & Nienke Oomes, 2005. "Money Demand and Inflation in Dollarized Economies," IMF Working Papers 05/144, International Monetary Fund.
  8. Yusuf Tashrifov, 2008. "The Design of Monetary Policy in a Small Transitional Economy: The Case of Tajikistan," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 11(1), pages 13-36, May.
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Cited by:
  1. Frank Hespeler, 2013. "A VECM evaluation of monetary transmission in Uzbekistan," Economic Change and Restructuring, Springer, vol. 46(2), pages 219-253, May.

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