Why Does the NBM Relax its Monetary Policy, And What Could be The Results? Inflation Forecasts for 2012

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Publishing date: Friday, 02 March 2012
Views: 9139

The purpose of this analysis is to simulate, with a Structural Vector Auto Regressive (SVAR) Model, the impact of monetary policy decisions of the National Bank of Moldova, the main factors which affect their efficiency, as well as to develop forecasts on inflation. Thus, we conclude that the main challenge for monetary authority in the process of inflation targeting is the strong influence of non-monetary inflationary factors. These depend on production costs, prices on energy resources and world prices, factors which cannot be influenced by monetary policy. Depending on the regional inflationary trends, weather conditions and a set of domestic factors (exchange rate, economic activity, production costs and monetary policy stance) we forecast a 4.5%, y-o-y inflation level for the end of 2012. It might vary by ±1 p.p. depending on the foreign economic conditions and, respectively, on domestic food prices, climate, as well as on the global energy prices 

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