Исследовательский Центр ИПМ
Kasrtyčnicki Ekanamičny Forum

WP/14/02 Inflation Forecasting in Belarus

Forecasting inflation in Belarus is complicated due to frequent shocks affecting key inflation determinants. These shocks particularly result from the high amount of government regulation of the economy: both the direct regulation of prices, and the indirect influence on the exchange rate, interest rates, and other variables which drive inflation. To control, at least partially, for the first source, id est price regulation, the dynamics of prices which are regulated by the government can be forecast separately from the dynamics of prices for other goods and services. This approach was employed in this paper. The CPI was “cleaned” from the dynamics of prices for several goods and services which mainly have a considerable weight in the consumer basket and are subject to government regulation (direct or indirect). The obtained models for forecasting the “cleaned” CPI have good statistical properties: they are on average better than the properties of the models for forecasting the CPI that were used by the IPM Research Center before. Moreover, with these new models, it is obviously much easier to incorporate the information on future changes in regulated prices in the procedure of forecasting the CPI.