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Inflation Dynamics in Mongolia: Understanding the Roller Coaster

Author

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  • Julia Bersch
  • Mr. Steven A Barnett
  • Mr. Yasuhisa Ojima

Abstract

Inflation in Mongolia resembles a roller coaster ride with sharp rises and steep drops. Understanding why is critical for formulating and assessing monetary policy. Food prices are found to be a key driver of inflation, and, not surprising given Mongolia’s geography, are determined primarily by local supply conditions, highly seasonal, and subject to large but short-lived shocks (usually weather related). Nonetheless, demand factors are also found to be significant in explaining price movements and empirical evidence suggests that a 10 percent increase in government wages, for example, would push up underlying inflation by 1 percentage point. So, while inflation will remain volatile due to agricultural shocks, there is space for macroeconomic stabilization policy to help reduce inflation volatility.

Suggested Citation

  • Julia Bersch & Mr. Steven A Barnett & Mr. Yasuhisa Ojima, 2012. "Inflation Dynamics in Mongolia: Understanding the Roller Coaster," IMF Working Papers 2012/192, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/192
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    References listed on IDEAS

    as
    1. International Monetary Fund, 2012. "Mongolia: Second Post-Program Monitoring Discussions," IMF Staff Country Reports 2012/052, International Monetary Fund.
    2. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, May.
    3. Julia Bersch & Tara M. Sinclair, 2011. "Mongolia: Measuring the Output Gap," IMF Working Papers 2011/079, International Monetary Fund.
    4. Mr. James P Walsh, 2011. "Reconsidering the Role of Food Prices in Inflation," IMF Working Papers 2011/071, International Monetary Fund.
    5. Jeannine Bailliu & Daniel Garcés & Mark Kruger & Miguel Messmacher, 2003. "Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico," Staff Working Papers 03-17, Bank of Canada.
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    Citations

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    Cited by:

    1. Chuluunbayar, Delgerjargal, 2019. "Output Composition of Monetary Policy Transmission in Mongolia," MPRA Paper 98111, University Library of Munich, Germany.
    2. Gan-Ochir Doojav & Davaasukh Damdinjav, 2021. "Policy-Driven Boom and Bust in the Housing Market: Evidence from Mongolia," Asian Development Review (ADR), World Scientific Publishing Co. Pte. Ltd., vol. 38(02), pages 279-317, September.
    3. Sabatier, R. & Joly, F. & Hubert, B., 2017. "Assessing both ecological and engineering resilience of a steppe agroecosystem using the viability theory," Agricultural Systems, Elsevier, vol. 157(C), pages 146-156.
    4. Doojav Gan-Ochir & Luvsannyam Davaajargal, 2023. "Forecasting Inflation in Mongolia: A Dynamic Model Averaging Approach," Journal of Time Series Econometrics, De Gruyter, vol. 15(1), pages 27-48, January.

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