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Quarterly Projection Model of Azerbaijan (AzIM 1.0)

Author

Listed:
  • Tural Yusifzada

    (Central Bank of Azerbaijan Republic)

  • Nazrin Ramazanova

    (Central Bank of Azerbaijan Republic)

  • Ramiz Rahmanov

    (Central Bank of Azerbaijan Republic)

  • Vugar Ahmadov

    (Central Bank of Azerbaijan Republic)

Abstract

This paper presents the first version of the Azerbaijan Quarterly Projection Model (AzIM 1.0), a forward-looking, open-economy gap model. The model is designed for forecasting, simulations, and monetary policy analysis. It consists of five main building blocks: (i) aggregate demand block consisting of the non-oil output gap, (ii) a Phillips curve (inflation forecasting) block modeling inflation and inflation expectations, (iii) a risk adjusted uncovered interest rate parity block serving as the nominal anchor; (iv) Taylor rule (short-term interest rate) block that defines the monetary policy reaction function; and (v) an external sector block. AzIM 1.0 is based on a semi-structural New Keynesian framework, which has been adapted to reflect the specific characteristics of the Azerbaijani economy, particularly the transmission mechanisms and formulation of the monetary policy. The model calibration is informed by econometric estimations for Azerbaijan, insights from international literature and comparable country experiences, as well as historical trends. To assess the model’s robustness and adequacy, we conduct impulse response analysis, equation decomposition, and in-sample simulations.

Suggested Citation

  • Tural Yusifzada & Nazrin Ramazanova & Ramiz Rahmanov & Vugar Ahmadov, 2024. "Quarterly Projection Model of Azerbaijan (AzIM 1.0)," Working Papers 2401, Central Bank of Azerbaijan Republic.
    • Handle: RePEc:aze:wpaper:2401
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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