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The Influence of External Economic Factors on Inflation

Student: Armen Hakobyan

Supervisor: Andrey Aistov

Faculty: Faculty of Economics

Educational Programme: Economics (Bachelor)

Final Grade: 9

Year of Graduation: 2020

In our work, we consider the dependence of the inflation rate on foreign economic factors. The study builds models based on time series and panel data. In the first case, a study of inflation in Russia is conducted, determining the dependence on various external economic factors based on monthly data from 2000:01 to 2018:12. These variables include the price of oil, the value of the dual currency basket (dollar and Euro), exports and imports, capital outflows, and the Dow Jones international industrial index. The study uses data from the Central Bank of the Russian Federation, with a total of 227 observations. Initially, it is assumed that capital outflows and imports affect inflation negatively, while the Dow Jones index, exports, the cost of a bi-currency basket and the price of oil - positively. This study is conducted to identify statistically significant external economic factors that affect inflation. The paper uses econometric research methods. Least squares regressions were constructed, as well as several models using the SUR method. The panel studies use an unbalanced data set for the period from 1970 to 2019 for 273 countries. Models are built based on OLS estimates, with the addition of autoregression and the use of the method of instrumental variables. A panel study of inflation is always dominated by a fixed-effect model. In General, the best model contains a trend factor and autoregression. In a globalized economy, such research is necessary for choosing the right economic policy. The work consists of an introduction, main part, conclusion and Appendix. Thus, the main hypotheses are formed, the theoretical part is described, the results of the empirical part of the study are presented, and the corresponding conclusions are drawn.

Full text (added May 22, 2020)

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