CEU Electronic Theses and Dissertations, 2009
| Author | Huseynov, Salman |
|---|---|
| Title | Monetary Policy and Inflation Dynamics in Azerbaijan |
| Summary | In this thesis, I employ VECM to model inflation dynamics in Azerbaijan and to seek an answer to the question of optimal monetary policy framework in the boundaries of empirical findings. As Azerbaijan falls to the category of commodity exporting countries, I place the problem in the context of terms-of-trade shocks and interpret the empirical findings in the light of the practices and experiences of commodity exporting countries. Estimation results show that though exchange rate pass-through is very fast and significant, stabilization of foreign exchange market leads to enormous monetary expansion due to lack of sufficient sterilization channels and instruments and creates monetary shocks. Even if they were available, stable exchange rate and lower inflation would be unattainable due to the domestic economy’s vulnerability to terms-of-trade shocks. In other words, the Central Bank of Azerbaijan can not pursue independent monetary policy and stabilize exchange rate at the same time. This is the classical dilemma (or trilemma) manifesting itself in a more particular setting – in the context of the commodity exporting country. Therefore, CBA is at a crossroads, either it should choose to stabilize exchange rate and unleash inflation or pursue independent monetary policy but tolerate fluctuations in the foreign exchange market. Although a difficult choice it is not without precedent and experiences of other commodity exporting countries can serve as a lighthouse. |
| Supervisor | Ratfai, Attila |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2009/huseynov_salman.pdf |
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