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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, the author was 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. It's found that excess supply of broad money is inflationary in both the short and long term.
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