Kyrgyz Republic: Selected Issues
IMF Staff Country Reports, March 4, 2024
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- Kyrgyz Republic: Selected Issues
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Bibliographic details
- Published: March 4, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400269462.002
Summary
- This Selected Issues paper undertakes a detailed analysis of the inflation dynamics and its determinants in the Kyrgyz Republic to shed light on the unprecedented inflationary surge since 2021.
- It employs two complementary methodologies to model a complex interplay between domestic and global factors, and policy variables.
- The paper constructs a new comprehensive measure of inflation expectations, encompassing both adaptive and forward-looking components.
- As an additional novelty, the paper introduces external variables to the Phillips curve framework.
Major findings
- Global food prices have historically driven inflation in the Kyrgyz Republic.
- Domestic factors have become more prominent contributors to inflation in recent years.
- Liquidity conditions now have a much stronger contribution to inflation than previously observed.
- There is a disconnect between policy interest rates and market liquidity, weakening monetary policy transmission.
Methodology highlights
- Two complementary modeling approaches are used to capture interactions among domestic factors, global developments, and policy variables.
- A new comprehensive measure of inflation expectations is constructed that includes both adaptive and forward-looking components.
- External variables are incorporated into the Phillips curve framework as an additional innovation.
Policy implications and recommendations
- To strengthen the effectiveness of monetary policy and support the National Bank of Kyrgyz Republic’s intended transition to an inflation-targeting framework, excess liquidity needs to be drained and brought in conformity with the policy rate.
- Discontinuation of central bank’s participation in the domestic gold market is required, as it is identified as the main source of liquidity injections.
Content in this bundle
- Kyrgyz Republic: Selected Issues; IMF Country Report No. 24/65; January 19, 2024