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Modelling core inflation in Ukraine in 2003-2012

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  • Novikova Natalia
  • Volkov Dmitry

Abstract

High volatility of Ukrainian inflation can partially be explained by large share of food and energy. The structure of Ukrainian CPI basket makes it difficult to distinguish between the underlining and temporary changes in inflation, which complicates the reaction of monetary policy. In this study we consider different measures of consumer price growth and examine moving to core inflation as an intermediate target for NBU monetary policy. We employ VEC framework to explore the difference between reaction of headline and core inflation to macro fundamentals in 2003-2012. Two approaches - exclusion-based method and trimmed mean – are used to construct alternative core indices. Although our estimation results do not allow making unambiguous choice of the inflation target for monetary policy in Ukraine, they suggest that core inflation should be monitored and used in communicating monetary policy decisions. We found that both headline and core inflation have high degree of persistence, fit well within the mark-up model, and that exchange rate pass-through is high in both cases. Meanwhile, core indices could help distinguish shocks coming from regulated prices and nominal wages.

Suggested Citation

  • Novikova Natalia & Volkov Dmitry, 2012. "Modelling core inflation in Ukraine in 2003-2012," EERC Working Paper Series 12/12e, EERC Research Network, Russia and CIS.
    • Handle: RePEc:eer:wpalle:12/12e
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    1. repec:zbw:bofitp:2016_014 is not listed on IDEAS
    2. Faryna, Oleksandr, 2016. "Exchange rate pass-through and cross-country spillovers: Some evidence from Ukraine and Russia," BOFIT Discussion Papers 14/2016, Bank of Finland, Institute for Economies in Transition.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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