Economic Growth and Inflation
Recently the rates of growth of money supply and general price levels in Russia have systematically exceeded the appropriate indicators planned by the government and the Central Bank (CB). Starting from the second half of 2007, doubts about the efficiency of the anti-inflation regulation considerably increased, when prices for essential types of food supply tended to grow considerably, and inflation processes in other product markets also substantially strengthened.
These phenomena are usually explained by an ‘unexpected’ growth of prices in food and other world markets. Such explanations are generally based on the well-known concept of cost-push inflation. The popularity of this concept in the USSR and later in Russia can be explained by the predominance of cost-based types of economy and an oligopolistic structure of economy. But the increase of prices for energy resources, and the recent rise of food prices on world markets were not accompanied by the same rise of inflation in the USA, Japan or the majority of West European countries.
The price growth which started in 2007 appeared to be localized in separate product groups and uneven in different elements of trade and in different regions. The negative consequences of this price increase mainly had an effect on the population groups with the lowest revenues, who have the biggest share of food expenditure in the structure of spending. This once again demonstrates the urgent need to increase the quality of socio-economic statistic data and the necessity of building a developed system of indicators which will allow the implementation of adequate monitoring processes from different structural angles and permit detection of problems at an early stage.
Key tasks of the research include:
- Analysis of the factors and economic mechanisms defining the correlation between the changes of prices in world energy resources, raw material and food markets, on one hand, and the growth rate of inflation in the national economy, on the other hand;
- Study of the possible ways of changing to a more effective strategy of anti-inflation regulation.
As a result of the research:
- Theoretical problems of the inflation inertia explanation were developed;
- The influence of price growth on financial assets was studied;
- The problems of formation and use of basic inflation indices were analyzed;
- Analysis of inflation and Bank of Russia monetary policy was conducted using VAR models.
- The macroeconomic interpretation of impulse response functions by the example of monetary shocks in Russia was discussed.
A number of important principles were discovered during the project.
Firstly, the empirical data showed that it was necessary to separate the unexpected and expected components of the monetary shock, since their mechanisms and level of influence on production changes are not the same.
Secondly, there is a considerable difference between the results of the monetary shocks’ influence on production dynamics, measured by the basic industries production index, which were received on the basis of rigid price model and on the basis of the model of expected and unexpected shocks.
Thirdly, the functions of the impulse response have a rather specific form which needs further investigation. One of the possible explanations may be the specifics of the transitional economy: functions of the impulse response, essentially, contain some historical information which is transformed to the form of polynomial a*(L), and due to this it is very probable that dynamics of the variables from the period of ‘instability’ can poorly model the future. On the other hand, a possible reason might be the lack of significant factors in the model. In addition to that, the frequency of the data also plays its role: probably, with the use of quarterly, not monthly, data, the dynamics would be more even pronounced, and increasing the forecast horizon would show other long-term changes.
In addition to the issues of research of inflation and economic growth which comprise the main part of this study, it also included two more research blocks:
- A description of the RU-KLEMS project was given (Russian part of the EU-KLEMS Growth and Productivity Accounts project);
- Development of statistic databases for HSE fundamental research were considered, particularly those related to the development of economic databases http://stat.hse.ru, which provide actual data on the dynamics of key macroeconomic indicators with the focus on their use in research and education.