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An empirical study of factors affecting inflation in Republic of Tajikistan

Qurbanalieva, Nigina (2013): An empirical study of factors affecting inflation in Republic of Tajikistan.

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Abstract

This paper investigates the core factors affecting the price level in republic of Tajikistan by using ‘auto regressive distributed lags’ and Johansen-Juselius cointegration models. The empirical analysis is based on a dataset of demand pull and cost push inflation indicators. We used the monthly data for a period of 2005 to 2012. The findings of this study reveal that in the long run exchange rate, world wheat prices, world oil prices and labor supply Granger cause the price level. Nevertheless, in the short run only world wheat price and labor supply has significant impact. In case of demand pull inflation, in the long run, GDP gap, remittances inflow, and real wages are endogenously determined in the system as they significantly affect the price level. But in the short run, GDP gap, remittances inflow, broad money, government expenditure and real wages Granger causes the price level. Furthermore, there is a bi-directional Granger causality between GDP gap and remittances inflow. Also, real wage Granger causes the government expenditures. The GDP gap Granger causes the real wage, implying the scenario that a major cause of under production is the low level of employment. Finally the price level also Granger causes the real wage, is a reflection of a negative relationship between them.

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