Исследовательский Центр ИПМ
Kasrtyčnicki Ekanamičny Forum

Money as a leading indicator of inflation in Belarus and its implications for monetary policy

High inflation is one of the most acute problems of the Belarusian economy in recent years. It undermines the foundations of macroeconomic stability, introduces a significant uncertainty in the activity of enterprises and households, and creates difficulties for private business development. Therefore, at the moment the reduction of inflation is a key issue for economic policy in Belarus. In order to stabilize high inflation and make monetary policy more effective, the National Bank of Belarus (NBB) in 2015 moved to a regime of monetary targeting. However, the usage of monetary targeting requires clear-cut and stable relationships between the variables used as the operational, intermediate and final target. The absence or weakness of such links makes a monetary targeting regime actually ineffective in reducing inflation.
In this paper we evaluate the empirical foundations of monetary targeting in Belarus using relevant comprehensive econometric techniques. We use econometric approaches based on the cointegrated vector autoregression model (cointegrated VAR) to analyze the relationships between the operating and the intermediate target and estimate the real money demand function.