Inflation Dynamics in Mongolia : Understanding the Roller Coaster

Author/Editor:

Julia Bersch ; Steven A Barnett ; Yasuhisa Ojima

Publication Date:

July 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Inflation in Mongolia resembles a roller coaster ride with sharp rises and steep drops. Understanding why is critical for formulating and assessing monetary policy. Food prices are found to be a key driver of inflation, and, not surprising given Mongolia’s geography, are determined primarily by local supply conditions, highly seasonal, and subject to large but short-lived shocks (usually weather related). Nonetheless, demand factors are also found to be significant in explaining price movements and empirical evidence suggests that a 10 percent increase in government wages, for example, would push up underlying inflation by 1 percentage point. So, while inflation will remain volatile due to agricultural shocks, there is space for macroeconomic stabilization policy to help reduce inflation volatility.

Series:

Working Paper No. 12/192

Subject:

Agricultural prices Consumer price indexes Economic models Fiscal policy Government expenditures Inflation Inflation rates Monetary policy Mongolia

English

Publication Date:

July 1, 2012

ISBN/ISSN:

9781475505412/1018-5941

Stock No:

WPIEA2012192

Format:

Paper

Pages:

21

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