Is inflation in Belarus inertial?

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This research note has been prepared on the results of the study of inertial inflation in Belarus for the period 1995 to 2011 based on quarterly data using the GDP deflator measure and the consumer price index (CPI) with the data seasonally adjusted. For the recording of the multiple structural changes in the above reporting period the impulse-indicator saturation (IIS) method was used on the indicator variables. Testing for structural changes, based on the aforementioned method, showed the presence of three structural shifts in the inflation dynamics based on the CPI and the GDP deflator. All identified structural changes have a clear economic explanation.

Taking into account these structural shifts through the analysis of the inflation dynamics led to the conclusion that they are fixed values, the averages of which change over time. Point measurements for inertial inflation based on the GDP deflator and the CPI are relatively small: 0.32 and 0.53, respectively.

The analysis shows that the inflation rate based on the GDP deflator returns to its equilibrium level about 1.5 quarters after the corresponding shock, and the rate of inflation based on the CPI - approximately after 2 quarters.

These results have implications for economic policy: low intertial inflation in Belarus creates a good prerequisite for macroeconomic stabilisation and an anti-inflationary monetary policy.

Ihar Pielipaś
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Last updated 30.01.2016
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