Why Had the Money Market Approach Been Irrelevant in Explaining Inflation in Azerbaijan During the Rapid Economic Growth Period?
Journal of Middle Eastern Finance and Economics, No. 10, 2011
10 Pages Posted: 16 Mar 2011
Date Written: February 1, 2011
Abstract
The study examines whether inflation process can be explained within the framework of the Money Market Approach in the third stage of economic development of Azerbaijan economy covering 2004-2008. By employing dynamic modeling study concludes that the Money Market Approach has not been relevant for explaining Azerbaijani inflation. Because Azerbaijan, a resource rich small open economy in transition processes, has some stylized facts which are important to take into account in the analysis of the inflation. Since the Money Market Approach seems irrelevant one, the paper puts forward application of other alternative explanations for Azerbaijani inflation in the future. In this regard analyzing inflation in the context of resource dependence seems one of the relevant approaches due to high price increases mainly sourced from oil revenues.
Keywords: Inflation rate, Money Market Approach, Transition economy, Resource Abundance, Oil and Non-oil Sectors, Econometric modeling, Azerbaijan
JEL Classification: P24, Q33, C22
Suggested Citation: Suggested Citation
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