Analysis of Monetary Policy and Inflation:

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BY

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Evidence from Uzbekistans Macro Economy

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Salimov Khondamir Makhamadjonovich

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A thesis submitted in partial fulfillment of the

MASTER OF ARTS IN

INTERNATIONAL DEVELOPMENT

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requirements for the degree of

at the
INTERNATIONAL UNIVERSITY OF JAPAN
2010

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The thesis of Salimov Khondamir Makhamadjonovich is approved by the Thesis

Examining Committee.

_______________________________

_______________________________
Professor Hiroaki Miyamoto (Supervisor)

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Professor Ching-Yang Lin (Examiner)

INTERNATIONAL UNIVERSITY OF JAPAN

2010

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ABSTRACT OT THE THESIS

Analysis of Monetary Policy and Inflation:
Evidence from Uzbekistans Macro Economy
by

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Salimov Khondamir Makhamadjonovich

Master of Arts in International Development
International University of Japan, 2010
Professor Hiroaki Miyamoto, Supervisor

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This thesis studies the effect of monetary policies on price levels in Uzbekistan for
the period between 1995 and 2009. We employ three alternative time series analyses

and examine the relationship between output, price levels, exchange rates, and

money supply in Uzbekistan. Empirical results demonstrate that current inflation

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rate is explained not only by money supply but also by other monetary factors, such
as the exchange rate, interest rate, foreign price levels or output growth. This study
shows that for the realization of an effective anti-inflationary policy, other monetary
factors also need to be watched.

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Key words: Monetary Policy, Price levels, Inflation Rate, Vector autoregression.

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TABLE OF CONTENTS
Abstract..

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v

List of Tables.

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Acronyms...

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Acknowledgements...

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Chapter 1: INTRODUCTION__________________________________

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List of Figures

Chapter 2: OVERVIEW OF MONETARY POLICY IN THE

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REPUBLIC OF UZBEKISTAN______________________

Monetary Policy and Growth of Uzbekistan in General.......... 3

2.2-

Historical relationship between inflation, Money growth,

GDP growth and exchange rates in Uzbekistan.....

2.1-

Chapter 3: LITERATURE REVIEW____________________________

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Determinants of Inflation in Theory....

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3.2-

Empirical Studies on the inflation-growth relationship...

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3.3-

Nexus of Monetary Policy and Price Levels...

15

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3.1-

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Chapter 4: FRAMEWORK OF ANALYSIS AND

EMPRICAL ESTIMATION_________________________

Model Specification and Data.. 19

4.1-

Data Analysis......

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4.2-

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Chapter 5: EMPRICAL RESULTS AND POLICY IMPLICATIONS_ 32

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APPENDICES_______________________________________________

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BIBLIOGRAPHY____________________________________________

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Chapter 6: CONCLUDING REMARKS_________________________

LIST OF FIGURES
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Figure 1:
Money Supply and Price Level Dynamics of Uzbekistan in 1995-20098

Figure 2:

Inflation and Money Growth Dynamics of Uzbekistan in 1995-2009..........8

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Figure 3:

Dynamics of GDP growth and Inflation in Uzbekistan (1995-2009)........9

Figure 4:

Figure 5:

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Impulse Response Function Results..28

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Accumulated Impulse Response Function Results .30

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LIST OF TABLES
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Table 1: Refinancing Rate of the CBU (1994-2009)..4

Table 2: GDP - real growth rate (%) 2009 Country Ranks.....6

Table 3: Descriptive Statistics ...24

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Table 4: Unit Root Test results...25

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Table 5: Johansen Cointegration Test.....25

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ACRONYMS

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OLS
PPP
USD
UZS
VAR
VECM
WPI
WTO

Asia Pacific Economic Conference

Central Bank
Central Bank of Uzbekistan
Commonwealth of Independent States
Consumer Price Index
Former Soviet Union
Gross Domestic Product
Gross National Product
International Monetary Fund
Impulse Response Function
Organization for Economic Co-operation and
Development
Ordinary Least Squares
Purchasing Power Parity
United States Dollars
Uzbek soum
Vector Auto Regression
Vector Error Correction
Wholesale Price Index
World Trade Organization

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APEC
CB
CBU
CIS
CPI
FSU
GDP
GNP
IMF
IRF
OECD

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ACKNOWLEDGMENTS
First, and above all else, I would like to thank to our Almighty for His blessing,
guidance and love. It is through His mercy that I have been able to succeed this far.

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Taking this opportunity I would like to thank several people who have a
significant impact in my life at IUJ and writing this thesis. First and foremost, I am

indebted to my supervisor Professor Miyamoto Hiroaki and to my thesis examiner

Professor Lin Ching-Yang for their invaluable comments and suggestions which

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improved this work.

Other than that, I would like to express my sincere appreciation to Japan Grant
Aid for Human Resource Development (JDS) program, for affording me the

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opportunity to come to IUJ to study.

I would like to extend my appreciations to all the teachers in IUJ and in my

previous study for their invaluable knowledge transfer during my life.

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I am also indebted to my friends, for their constant support and encouragement.

To all Yamato-machi people for their hospitality that made my stay in Japan more

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enjoyable.

Last but not least, I am forever indebted to my parents, especially to my father

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Mahammadjon Ahmadjonovich Salimov (May Allah have mercy on him) and other
members of my family for their spiritually support and very useful advices for life.

Chapter 1: INTRODUCTION
In developing countries and countries in transition to market economy, the
primary goal is to achieve the stability of an economy by maintaining low inflation

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rate and stabilizing prices. In Uzbekistan, the unmanageable growth of the price
level is one of the most important issues on the way of economic reforms.

Uzbekistan experienced hyperinflation in 1994 and the growth rate of price levels

exceeded 1200 percent per year. 1 High level of inflation has a negative impact on

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production, and leads to decreases in investment, overflows of banking speculation

and trade. In order to stabilize the price level, it is well known that monetary
policies play an important role. 2 However, the effect of monetary policies on price

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levels in Uzbekistan has not been studied in the formal framework. 3

The purpose of this paper is to study the effect of monetary policies on price

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levels in Uzbekistan. In particular, this study evaluates the effectiveness of monetary

policy in controlling the inflation. For this purpose, I employ three alternative time

series analyses and examine the relationship between price levels, exchange rates,

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and money supply in Uzbekistan.

This inflation rate was one of the highest among Central Asian countries and was
the highest value after 1991 in Uzbekistan.
2
Monetary policy represents a set of interconnected measures undertaken by the
Central Bank with aim to regulate business activity through planned influence on
loan and money circulation. Keeping reasonable levels of price stability has been a
main target of monetary policies in Uzbekistans economy.
3
Before the transition period to market economy, Uzbekistan was in planned
economic system. Hence, there was no reason to consider stabilizing the price levels.

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Empirical results do not show a clear relationship between money supply and
the price level. This implies that the central bank of Uzbekistan has not succeeded
controlling price level by controlling money supply. However, if we take a look to
the data, we can see the same upward trends for both money supply growth and

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price level 4. Therefore, we analyzed the effect of exchange and interest rates to the

inflation as well. In contrast, there are short term and long term effects of foreign

price level, interest rate and exchange rate movements to the inflation rate.

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The remainders of this paper are organized as follows. Second chapter explains
the overview of monetary policy, growth and price levels of the country in general.

Third chapter discusses literature review on determinants of inflation in theory and

empirical studies on relationship between inflation and monetary policy. Framework

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of the analysis is clarified in the fourth chapter and data analysis, model
specification and methodology are explained. In the fifth chapter, empirical results

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and discussions are explained. Finally, chapter six presents policy implications and

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gives some concluding remarks.

See Figure 1 for the detail.

Chapter 2: OVERVIEW OF MONETARY POLICY IN THE REPUBLIC OF

UZBEKISTAN
2.1 Monetary Policy and Growth of Uzbekistan in General
Monetary policy plays a key role in achieving macroeconomic stability in

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developing countries and countries in transition to market relations as well, where,

as we know, there is instability in key macroeconomic indicators, especially in

inflation.

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It is obvious that an important advantage of monetary policy is the flexible and

quick impact on the economic condition of the country. The results of this monetary

policy immediately affect the financial condition of the country. This is especially

important in the application of immediate measures to fight against inflation. Thus, I

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tried to pay more attention to the Central Banks instruments of monetary control
and their effectiveness in the short-run and long term.

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In the initial stages of the transition to market economy, like many other CIS
countries Uzbekistan also faced macroeconomic issues such as: recession, rising

unemployment and inflation rates, shortage of financial resources, the budget deficit.

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By ensuring price stability, monetary policy creates conditions conducive to

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economic growth, strengthens the macroeconomic and financial stability of the

country. To prevent the growth of macroeconomic issues and to achieve the stability
Uzbekistan had to develop a special program of stabilization, to introduce its own
national currency and select the instruments of monetary policy.
Introduction own national currency in 1993-1994s marked as the beginning of
the economic development of the republics own domestic monetary policy.
Proceeding from the conditions of the initial phase of reforms, Uzbekistan clearly

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identified the tactical and strategic objectives of monetary policy. The strategic goal
of the Central Bank of Uzbekistan (CBU) was to employ standard instruments of
monetary regulation which were characteristic of developed countries. However, in
many developing countries in the early transition stage they prevented the use of

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tools specific to market economy.

Taking into account these realities, CBU decided making a radical change in

monetary policy, such as, rebuilt credit and interest rate policy in order to reduce the

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monetary channels of the inflation. To achieve this goal, the CBU applied the tools
of refinancing which is interest rate policy. In 1994-1995s CBUs refinancing rate

increased as follows. Since October 1994 150%, from January 1995 225%, from

1st of March 1995 300% then from second half of 1995 it decreased to 84% and

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gradually decreased to 14% in 2009.

Table 1: Refinancing Rate of the CBU (1994-2009)

1995
84.0

1996
48.0

1997
30.0

1998
36.0

1999
36.0

2000
24.0

2001
24.0

2002
2003
30.0
24.0
Source: CBU

2004
18.0

2005
16.0

2006
14.0

2007
14.0

2008
14.0

2009
14.0

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1994
225.0

Between the short terms, applying costly money policy by CBU led to reduce

bank lending this is consequently led to decrease in investment activity that in turn
resulted a decline in production. On the other hand, there were long-term goals of
this monetary policy of CBU such as reducing inflation and strengthening the
national currency.
From the second half of the 1994, interest rate policy of CBU has changed.

Mostly, it focused on two interrelated goals: keeping the level of monetary

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indicators at specified rate and liquidity of the banking system and secondly,
achieving and maintaining the macroeconomic stability.
Benchmarking the reserve requirements for banks was a process in transition to
market relations and one of the main economic instruments for implementing

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monetary policy. Interest rate and rate for reserve requirements rose in 1994.

The purpose of introducing these changes was the adaptation of reserve

requirement tools for monetary development in order to prepare for the introduction

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of its own national currency. Therefore, CBU increased the rate of reserve
requirements in order to reduce the money supply. The funds attracted for up to 3

years term the rate is set at 30%, and for a period exceeding 3 years -10%. With the

improvement of market relations and the use of government securities, the interest

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rate and reserve requirements in subsequent years were significantly reduced.

History shows that monetary policy carried out by CBU to curb the growth of

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the monetary base, currency in circulation result a downward trend in inflation. If

the annual growth rate of money supply in 1995 was 2.6 times that in the subsequent

years of 1996, 2000, 2005, and 2009 were 2.2, 1.5, 1.3, and 1.4 respectively. The

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level of annual CPI reached more than 12 times between the periods 1992-1996,

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however, in 2002 this rate reduced to 20%. Consequently this process positively
affected the dynamics of interest rates in the money market and exchange rate in the
domestic market.
Next steps of CBU were associated with exchange policy of foreign currency.

In 2004, as a result of foreign exchange liberalization, by introducing the

convertibility of national currency the amount of the transactions on the domestic
market increased significantly. In 2009, main reforms and development programs

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effectively realized. Gross Domestic Product improved by 8.1%, industrial output by 9.0%, agriculture by 5.7%, investment by 9.1%, trade by 16.6% and
services by 12.9%. According to the Table 2 below, annual GDP growth rate of
the country was higher than growth rates in Russia (6.0%), Moldova (7.3%),

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Kazakhstan (3.0%), Ukraine (2.1%) and Tajikistan (7.9%). In 2009, Uzbekistans

position was fourth in terms of growth of GDP among FSU countries after

Azerbaijan (11.6%), Turkmenistan (10.0%) and Belarus (9.2%) and 9th in the world.

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GDP Growth,%
15.0
13.2
11.6
11.2
10.2
10.0
9.8
9.2
8.9
7.9
6.0
3.8
3.0
2.1
1.3
1.0

Country
Macau
Angola
Azerbaijan
Qatar
Anguilla
Turkmenistan
China
Belarus
Uzbekistan
Tajikistan
Russia
World
Kazakhstan
Ukraine
US
EU

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Rank
1
2
3
4
5
6
7
8
9
14
30
48
55
64
72
75

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Table 2: GDP - real growth rate (%) 2009 Country Ranks

Source: CIA World Fact book 2009

Furthermore, in 2009 accelerating economic growth also accomplished by a

effective and balanced fiscal and monetary policies. The budget surplus amounted
0.5% of GDP. Producers tax burden has been reduced. The result of tight monetary
policy led to decrease inflation level up to 7.4 percent.

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The CBU conducted intensive monetary policy in last recent years and one of
the main goals of the CBU was to strengthen the purchasing power of the currency.
To maintain the sustainable levels of national currency, the CBU implemented a

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tight monetary policy and decreased the impact of monetary factors on price levels.

growth and exchange rates in Uzbekistan

2.2 Historical relationship between inflation, Money growth, GDP

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In this part our objectives are analyzing the relationship between inflation and
GDP growth and money supply growth in periods from 1995 to 2009. When

monetary or fiscal policy are not stable, the economy of the country suffers from

serious macroeconomic imbalances such as rising inflation and money supply,

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multiple exchange rates which overvalue the currency, a distorted interest rate
regime, unreliable statistics and

an inability to resolve national accounts to

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determine a realistic GDP figure. According to quantity theory of money, the money
supply and inflation have a positive relationship in terms of increase in the money

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stock and increase in the price level.

Figure 1: Money Supply and Price Level Dynamics of Uzbekistan in 1995-2009.

12000.0
10000.0

2000.0

8000.0

1500.0

Bln UZS

6000.0

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UZS CPI, 1994=100

2500.0

1000.0

4000.0

500.0

2000.0

0.0

0.0

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1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58
Price Level

Quarters (1995-2009)

Money Supply

Figure 1 above is consistent with quantity theory of money, which we can see

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the relationship between money supply and price levels is positive. Money supply
gradually increased year by year, simultaneously, inflation rate has a upward trend
in this period of time.

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Figure 2: Inflation and Money Growth Dynamics of Uzbekistan in 1995-2009

60.0

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50.0

30.0

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40.0

20.0

-10.0
Date, I/1995-IV/2009

Infl, %

M2 Gr, bln UZS

59

57

55

53

51

49

47

45

43

41

39

37

35

33

31

29

27

25

23

21

19

17

15

13

11

0.0

10.0

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However, if we take a close look to Figure 2, we can see the negative link
between price levels and money growth as well. Maybe this is because of there are
some other factors affecting the inflation rate more than money supply. Under
normal conditions, relationship between money supply and inflation is not

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immediate and so we should not expect all outcomes of currently implemented

monetary policy actions to happen in the same current period. The thing for

Uzbekistan is the time it takes a change in money stock to start affecting on inflation.

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Simultaneously, if we take look to Uzbekistans GDP growth-inflation relations, we

can see the similar pattern between these two variables.

Figure 3: Dynamics of GDP growth and Inflation in Uzbekistan (1995-2009)

50.0

50.0

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40.0

30.0

20.0

Inflation, %

40.0

30.0

60.0

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60.0

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20.0

10.0

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10.0

0.0

0.0

-10.0

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59

Date

Infl, %

Real GDPSA Gr,bln UZS

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Figure 3 demonstrates the dynamics of inflation and GDP growth which are
moving inversely between these years. The possible reason maybe is the impact of
the current inflation happens after some time later.
Thus, one of the objectives of this study is to determine these time lags in order

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to estimate the future inflation levels.

In 2009, the exchange rate of UZS against USD depreciated by 8.5% in

comparison with 2008. The depreciation of the exchange rate indicates positive

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currency was lower than previous years.

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expectations of market participants. It also indicates that, market demand for foreign

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Chapter 3: LITERATURE REVIEW

In this section, we introduce the other theoretical research papers and analytical
studies on this topic. In order to understand consequences and sources of inflation

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clearly, it is better to explain theoretical background of the monetary policy and

inflation. Even though some studies contradict each other, there is vast literature on

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relationship between inflation, monetary policy and prices.

3.1 Determinants of Inflation in Theory

One of the best known economics scholars Friedman Milton said, The only

cure for inflation is to reduce the rate at which total spending is growing. 5 In his

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work he emphasized that monetary measures have more considerable and reliable
effects than fiscal policies on total spending. Actually, he offered the finding, I

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dont think monetary policy has to be backed up by fiscal policy at all. I think
monetary policy can curb inflation. 6 Friedmans logic behind this was simple: A

budget deficit is inflationary if, and only if, it is financed in considerable part by

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printing money 7 explicitly, only if fiscal policy decisions are made by the

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monetary authorities. He offered the policy implication on the importance of

monetary actions for total spending, and aggregate spending for inflation as:
Monetary policy is an appropriate and proper tool when directed at achieving price

The only cure for inflation...: Friedman Newsweek column, November 12, 1979.
See Friedman interview in New Zealand Herald (1981) for the detail.
7
See Friedman interview in Chicago Daily News (1970) for the detail.
6

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stability or a desired rate of price change. 8 Nowadays this theory motivates the
monetary policy framework of main economies.
Perhaps, Phillip Cagan is famous for a work which tried to identify the
fundamental relationships between output, money and prices. In his work 9 he tried

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to analyze the hypotheses such as, Inflation process is self-generating and

Increase in price levels caused by money supply expansion during

hyperinflationary period. After the publication of Cagans work, many famous

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economists either developed or repeated analyze of the Cagans Model. Particularly

Barro (1970), Sargent (1977), Frenkel (1975), Abel (1979). Moreover, nowadays

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analyzing value of money.

economists in monetary field frequently refer to his Demand function while

3.2 Empirical Studies on the inflation-growth relationship

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In general the relationship between long-run growth and inflation is negative.

However, some empirical researches give variety of results, thus it is hard to say

there is a negative long-run relationship because in the short-term a Philips curve

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occurrence can lead to a positive relationship between economic growth and

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inflation. There have been a huge number of researches from best known scholars
provided negative relationship. Particularly, Barro (1997) found an empirical result
that inflation behavior has a negative relationship with economic growth. The paper
written by Barro covered more than 100 countries between the periods 1960-1990
and the results show that increase inflation by 10 percent leads to decrease in growth

8
9

See Friedman in Federal Reserve Bank of San Francisco Economic Review, (1977).
See Cagan, Phillip (1956) for the detail.

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of GDP per capita by 0.2 0.3 percent per year. Moreover, he suggested that
although the effect is very small, the long-run influences on living standards are
significant. For example, monetary action that increases long-run inflation rate by 10
percent per year lowers the Real GDP levels 4-7 percent after 30 years which

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justifies strong attention to price stability.

Lately, Bruno and Easterly (1998) have provided some clarification and

concluded that the negative relationship between growth and inflation is caused by

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high inflation crises, for the periods when there is inflation rate is above 40 % per
year.

However, in early empirical researches around 1960s on inflation and economic

growth were ambiguous like theory. Studies of International Monetary Fund (IMF)

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Papers about that period didnt identify any relationship between inflation and
economic growth. 10 Although inflation rate in Latin America reached more than 10

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percent in 1950s and 1960s their growth was good. For example, Brazil is often
referred to as high inflation and high growth counterexample to outdated view that

inflation is bad for the economy11. Wallichs (1969) findings are also interesting. He

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used cross section analysis of 43 countries, with pooled data for the periods 1956-65.

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Like other literatures of that time he also had expected positive relationship between
economic growth and inflation. However, instead of this he got strong negative
relationship. 12
After 1980s countries experienced new severe inflation processes, which were
empirically studied after the 1980s. In this period of time literature focused on the
10

See Tun Wai, U., (1959) for the detail.

See Pazos Felipe, (1972) for the detail.
12
See Wallich, Henry C., (1969) for the detail.
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short term output costs in hyperinflation process. There were very low or any output
costs for stabilization of high inflation, while cost of the stabilization of low
inflations was quite high. Thus presumption of the studies in the 1980s was a
positive relationship between inflation and economic growth in the short-run.

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According to the new theorists, high level of prices might affect the economic

growth negatively. In 1993 Dornbusch and Fischer reported his findings that

inflation was negatively related to economic growth. 13 They analyzed persistence

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and sources of moderate price level experience. In their study they provided 8 case
studies for different countries and according to their conclusion, by combining

incomes policy, deflationary fiscal policy and exchange rate actions and by

exploiting of positive supply shocks to make the inflation rate down countries could

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decrease moderate inflation rates to low inflation rates.

Similarly in his next paper, Easterly analyzed the yearly pattern of the inflation

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fluctuations and found that before and during the peak of the high inflation period
GDP per capita growth declined. Per capita growth recovered immediately after the

first year of peak of the inflation then started improving to high levels thereafter.

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A paper written by Mark N. Harris, Max Gillman and Lszl Mtys in 2001 is

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based on a monetary model of growth for describing inflation processes. Their

model suggested a negative relationship between inflation and growth and especially
this inverse relationship is stronger at lower levels of inflation. This paper
empirically analyzed model for the OECD and APEC countries for the periods from
1961 to 1997. The statistically significant results of econometric model show that
when inflation rate declines growth increases marginally for OECD member
13

See Dornbusch, Rudiger and Fischer, Stanley, (1993).

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countries. For APEC member countries results were similar by using instrumental
variables.
In 1985 Kormendi and Meguire examined relationship between price levels and
economic growth by using cross-sectional data for forty seven countries from 1950

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to 1977 and the results showed a significant negative relationship.

3.3 Nexus of Monetary Policy and Price Levels

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The thought that money supply growth leads to increase in price levels is one of
the oldest idea in economics. In 1752 David Hume examined money and price levels

and found that increases in prices correlated with increases in money supply.

Concluding the evidence of Hume, Friedman said Inflation is always and

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everywhere a monetary phenomenon 14 in 1963.

If we take a close look to recent researches, many well known economists also

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have found close relationship between changes in money supply and inflation. For
instance, Lucas in 1980 presented 2 implications of money supply theory: that

change of supply of money results the same change in the rate of price level and also

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same change in nominal interest rates by using quarterly time-series data of U.S. for

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the period from 1953 to 1977. Inspire of considerable evidences and a long history,
relationship between money supply and price levels remain disputed. Maybe this is
because of empirical relationship between price levels and money supply growth
holds for long time periods that empirical suggestions are not informative for
policymakers, who are concerning about the inflation of near future. Some of the

14

See Friedman, Milton (1992) for the detail.

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empirical studies were based on more than thirty years observation data. However,
Dwyer found short-term linkage between inflation and money supply growth rates 15.
Other IMF working paper prepared by Wojciech Malizsewski (2003) explains
the behavior of inflation in Georgian the post stabilization period, after introduction

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of the national currency Lari in October 1995. A long-term equation linking prices

to money and exchange rates, as well as a short-run, dynamic equation for inflation

are estimated. This paper attempts to throw some light on the behavior of inflation

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Georgia and to construct a tool for formulation and evaluation of the monetary
policy. It tests for the presence of economically interpretable long-run relationships

between money, inflation and exchange rates.

The results of the econometric model show that the long-run inflation equation

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expresses prices as a function of money, exchange rate and real income. Short-run
dynamics of inflation are strongly affected by changes of money supply, exchange

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rate and oil prices. As one of the FSU republics, the Georgian macroeconomic
situation is similar to Uzbekistans economy, as both countries were affected by

external shocks and their economies have been highly dollarized and parallel market

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exchange rates have played a significant role at the beginning of independence and

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following this paper is useful in Uzbekistans case.

Callen and Chang (1999) estimate two models of the inflation process in India:

one is based on a monetary approach and the other uses output gap and they then
assess their ability to forecast recent inflation developments. Second, they use a
series of vector autoregressions (VARs) for forecasting future inflation. The authors
argue that wholesale price index (WPI) has broader coverage and is published more
15

See Dwyer, G. and Hafer, R.W. (1999) for the detail.

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frequently than consumer price index (CPI) in India. So that they preferred to
analyze WPI even though CPI is more relevant in measuring inflation. So the
empirical work focuses on forecasting both the overall WPI and manufacturing price
index. The paper applied co-integration techniques to model the long-run behavior

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of prices and then derives dynamic equation for inflation based on these results. The

paper found some important results determining inflation in India and that prices of

primary goods are largely derived from climatic conditions and by changes in

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administered prices. Monetary aggregates also appear to contain the best information
about future inflation. Consecutively, the authors give some policy implications and

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also raise number issues for the monetary authorities.

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Chapter 4: FRAMEWORK OF ANALYSIS AND EMPRICAL ESTIMATION

This paper studies the effect of monetary policies on price levels in Uzbekistan.
For this purpose, we employ three alternative econometric models: the linear

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regression model, the vector autoregression (VAR) model, and vector error

correction (VECM) model. Based on the results of primary tests, the cointegration

test and the unit root test, we choose the appropriate method.

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If there is a cointegration between variables and estimation of Linear

Regression Model is unbiased then we will use simple OLS. On the other hand, if

equations are not cointegrated then we will use either VAR or VECM for further

analysis. Choosing VAR or VECM depends on the Unit Root Test. If the variables

RN
A

has unit root in the level then we will use VECM otherwise, if there is no unit root at
least in one variable then we will use VAR. Since we use time series data, we should

TE

test the stationary of the each variable in the model. It is important to make sure that
the variables used for the study are stationary or non-stationary, because, when the

series become non-stationary then we can obtain spurious estimation results. These

JI

results lead us to inappropriate conclusions even OLS regression shows significant

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results. The null hypothesis of the stationary test is that the variables have unit root
problem which means non-stationary.
Next step is to check if the variables are cointegrated or not. In 1987, Engle and
Granger introduced the concept of cointegration. The cointegration test examines
whether series have a long term equilibrium or long-run relationship. Testing for

cointegration combines the problems of unit root tests and tests with parameters
unidentified under the null hypothesis. In a series of examples it is found that

19
consumption and income are co-integrated, wages and prices are not, short and long
interest rates are, and nominal GNP is co-integrated with M2, but not M1, M3, or
aggregate liquid assets 16 . In our study we also test the long-run equilibrium
relationship between non-stationary variables by using Jahansen Cointegration Test.

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If in the long-run, variables are cointegrated each other then OLS method is efficient

Model Specification and Data

SE

4.1-

and unbiased otherwise we employ VAR model.

The first alternative method is simple linear regression by employing

economic series such as output, money supply, exchange rate, interest rate, foreign

price and price level for further analysis of inflation of Uzbekistan.

RN
A

Consider an economy producing tradable and non-tradable goods. Following

Obsfeld and Rogoff (1996), we assume that the overall price level pt is a weighted

TE

average of the price of tradable goods pT and non-tradable goods pN. Thus, the
overall price level is represented by the standard log-linear form:

= + (1 ) ,

(1)

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where is the share of tradable goods in total domestic expenditure.

We assume that the price of tradable goods pT is governed by the absolute

purchasing power parity (PPP), the hypothesis that the long-run exchange rate et is

determined by domestic prices relative to foreign prices pft 17. In logarithm form this
implies:

= + ,
16
17

See Engle, R. F. and Granger, C.W.J, (1987).

See Dornbusch (1982) for the detail.

(2)

20
It is assumed that the price of non-tradable goods depends on both supply and
demand factors. Demand for non-tradable is assumed to be related to overall demand
in the economy which for simplicity, can be represented by the money market
equilibrium 18.
= 1 2 ,

LY

(3)

where ms and md represent the supply and the demand for real money balances,

respectively.

SE

The demand for real money balances is specified by the standard Cagan money
demand function 19. Thus, we have

= 0 1 ,

(4)

where yt is the real income and it is the nominal interest rate.

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Substituting equations (2), (3), and (4) into (1) we get:

= + + (1 )(1 0 1 ) , (5)

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Equation (5) implies that the overall price level is function of output, money

supply, exchange rate, foreign price, and interest rate. Thus, we have
(6)

Pt=f(Yt, Mt, Et, Pft, It) ,

JI

Now we are in the stage to propose the first our econometric model. In order to

IU

examine the effect of monetary policies on inflation, we consider the following

simple linear regression model.

= 0 + 1 + 2 + 3 + 4 + 5 + ,

(7)

where M is money supply, Y is output, ER is exchange rate of UZS to USD, Pf is

foreign price(USD CPI), IR is interest rate and P is price level.
18
19

See Moser, G.G. (1995) for the detail.

See Cagan (1956) for the detail.

21

The second proposed method is Vector Autoregression (VAR) model. VAR

model provides a useful framework to analyze the effect of monetary policies, and a
number of studies have examined the relationship between money supply and,

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inflation (see for example Kamin and Rogers, 2000).

We are interested in the relationship between inflation, price levels, and

macroeconomic variables. In particular, we are interested in how prices and

SE

macroeconomic variables affect inflation rate, and also how inflation rate influences
them. In order to examine, we use the Granger-

The basic idea of the Granger-Causality Test is that past values of variables can

explain current values of variables and usually it is performed by assessing the

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significance of parameters in the following regression:

Yt= + t + 1Yt-1 + + pYt-1 + 1Xt-p + + qXq-1 + et

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Here X Granger causes Y if any or all of 1 , , q are statistically significant. In

other words, if X at any time in the past has explanatory power for the current value

of Y, then we can say X Granger causes Y.

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Vector in VAR indicates the more than one variable will be predicted. Thus, a

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set of regressions is run simultaneously and this indicates that variables will be
regressed on their own past values. Our model also includes macroeconomic
variables: inflation rate, output, money supply, exchange rate, foreign price and
interest rate. As mentioned previous parts, we are interested in whether these
variables have relationship with inflation by lag length and, in their turn, whether
money supply, output, exchange rate, interest rate and foreign price are influenced

22
by lagged values of the variable inflation. In order to check this, we will apply the
Granger-Causality Test.
Following the Sims we can also take the first difference when variables are
non-stationary. On the other hand, in their study (1990) Sims, Stock and Watson

LY

mentioned that the VAR with non-stationary variables incur some loss in estimators

efficiency although it may have in term of estimators consistency. Since the major

target is to examine the effectiveness of the monetary policy in monitoring the high

SE

inflation by using non-stationary data, the estimators consistency could be more

important than estimators efficiency in our problem. Thus, we analyze the

relationship between five main macroeconomic variables: inflation rate, GDP,

money supply, exchange rate, interest rate and foreign price level to employ a VAR.

RN
A

The main outcomes of the VAR estimation are vector autoregression estimates
and impulse-response functions. To analyze the interaction between variables, this

TE

study mostly relies on the impulse-response function (IRF). The IRF trace the effects

of a shock to one endogenous variable on to the other variables in the VAR model.

IU

JI

The third alternative method is Vector Error Correction Model (VECM).

One way of addressing this non-stationary issue is the use of first-differenced

time series in estimating the equation. This issue was first proposed by Granger in
1981 and later by Engle and Granger in 1987. According to Engle and Granger,
researchers can develop the cointegration relationship between variables to address
the non-stationary problem of variables. Their argument is that, if two or more
variables are cointegrated, that is, if there is a long relationship between them, then
the short run dynamics of the variables can be described by an Error Correction

23
Model 20 . This has become the standard empirical approach to address the nonstationary issue of time series data since the seminar paper by Engle and Granger in
1987.
In this research we propose three alternative econometric methods to analyze

LY

the relationship between inflation and other economic variables. Depending on the

results of unit root and cointegration tests, we will choose one of these methods. If

the variables are non-stationary and there is no cointegration between equations then

SE

we can take first difference of the variables and run OLS or use Vector
Autoregression model for further analysis. On the other hand, if the variables are

non-stationary and there is cointegration between variables then we use Vector Error

Correction Model (VECM). In this research we also assume a similar approach.

RN
A

Then, we explore the existence of the cointegration relationship between variables

Data

TE

based on standard cointegration techniques.

This paper uses main macroeconomics variables of Uzbekistan for the

JI

analysis of all three alternative methods: OLS, VAR and VECM methods. For these

IU

methods I used price level (P), money supply (M), output (Y), exchange rate of UZS
to USD (ER), foreign price (Pf) which is USD CPI and interest rate (IR). All
variables are quarterly for the period from 1st quarter of 1995 to 4th quarter of 2009.
The data on most variables are taken from Central Bank of the Republic of
Uzbekistan. Other sources of the data are International Monetary Fund, Asian
Development Bank and State Statistics Committee of the Republic of Uzbekistan.
20

See Engle, R. F. and Granger, C.W.J, (1987) for the detail.

24
The descriptive statistics of these variables are presented in Table 3.
Table 3: Descriptive Statistics

3201.56
1682.95
15757.10
34.20
3810.30
1.54
4.71

2167.87
899.53
11150.66
23.92
2804.41
1.61
4.61

60.00

60.00

60.00

Observations

Source: Authors estimations

Interest
Rate

686.66
767.80
1511.40
26.10
536.46
0.00
1.34

126.25
124.55
151.53
105.28
14.13
0.23
1.82

3.92
2.36
53.67
0.17
7.62
5.21
32.73

60.00

60.00

60.00

4.2- Data Analysis

Foreign
Price

LY

1197.82
1389.67
2230.27
148.45
643.47
-0.14
1.65

Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis

Exchange
Rate

Money
Supply

GDP

SE

Inflation
Rate

By employing Augmented Dickey-Fuller (ADF) Test, we examine whether the

Table 4: Unit Root Test results

Augmented Dickey-Fuller test
1st Difference
2nd Difference

TE

variables.

RN
A

data are stationary or not. Table 4 reports the results of the ADF tests for all the

Level

Price Level

-0.51

-2.69*

-9.41***

Exchange Rate

0.47

-6.13***

-8.80***

Interest Rate

-2.32

-10.62***

-10.45***

Foreign Price

-1.71

-2.73

-6.97***

Money Supply
Growth

-2.11

-6.19***

-6.50***

Output

-2.17

-10.01***

-8.46***

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Variables

Note: (***), (**) and (*) means significant at the 1%, 5% and 10% confidence level respectively.

25
According to the results of the stationary tests above, we can reject the null
hypothesis of all variables at the level. This implies that although for all variables we
cannot reject the hull of unit roots in the level, we can reject the null of unit roots in
the first difference except foreign price level. This implies that prices, output, money

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supply, exchange rate, interest rate except foreign price are stationary in first

difference.

Johansen Cointegration Test

SE

The results of the Johansen Cointegration Test are shown in the Table 5 below:

Eigenvalue

Trace
Statistic

Hypothesized
Number of
Cointegrated
Equations

Table 5: Johansen Cointegration Test

Trace 0.05
Critical
Value

**MacKinnonHaug-Michelis pvalues

0.00
0.00
0.00
0.13
0.18
0.15

TE

RN
A

None *
0.67
172.52
103.85
At most 1 *
0.56
111.76
76.97
At most 2 *
0.47
66.17
54.08
At most 3
0.24
31.08
35.19
At most 4
0.15
15.85
20.26
At most 5
0.11
6.61
9.16
Note: * denotes rejection of the hypothesis at the 0.05 level

According to the Table 4 above, trace test indicates 3 cointegrating equations at

JI

the 0.05 level which means there are some cointegrated equations in the long-run

IU

relationship. This can lead us to spurious results in the simple regression. Many
researchers would neglect valuable information regarding the long-run relationship

between the non-stationary variables. Due to the Unit root test and Cointegration test,
the OLS and VECM estimates spurious because of the non-stationary issues.
Therefore, we conduct the VAR model as an alternative way in this paper.
Appendix 2 presents the results from OLS estimation of VAR(2). Since there
are five variables and two lags in our VAR, there are five equations to estimate.

26
Each equation regress a dependent variable on each lag of the variables in the VAR.
Carrying out the Pairwise Granger causality test we test whether endogenous
variables can be treated as exogenous. If we examine the significant coefficients,
some interesting patterns emerge from the test:

LY

All variables output, interest rate, foreign price Granger cause but money supply

and exchange rate do not cause Inflation;

All variables money supply, exchange rate, and foreign price Granger cause

SE

output;

All variables inflation rate, output, exchange rate, interest rate except foreign

price do not Granger cause money supply;

All variables output, money supply, foreign price and interest rate except

RN
A

inflation rate do not Granger cause exchange rate;

All variables exchange rate and interest rate, money supply except inflation rate

TE

and output do not Granger cause foreign price;

All variables money supply, exchange rate and inflation rate except output and

foreign price Granger cause interest rate;

JI

The results demonstrate that past values of output, foreign price and interest

IU

rate can explain current inflation. On the other hand, the inflation rate is Granger
cause for exchange rate.
Furthermore, for analyzing how our variables affect each other over different
time horizons, we can precede dynamic analysis of our model by applying Impulse
Response Analysis. The Impulse-Response Function (IRF) shows us how a one-time

positive shock to one of the endogenous variables affects not only that variable, but

27
also transmitted to all the other endogenous variables in the VAR through the lag
structure of the model.
Figure 4: Impulse Response Function Results
Response of LNPRL to LNM

.02

.00

.00

-.02

-.02

-.04

10

10

10

.04

RN
A

.02

.00

-.02

TE

-.04
1

.02

.00

-.02

-.04

10

10

Response of LNPRL to LNIR

N
JI

.02

IU

Response of LNPRL to LNPF

.04

.04

Response of LNPRL to LNER

SE

-.04

.02

.04

LY

Response of LNPRL to LNGDP

.04

.00

-.02

-.04
1

Note: Red dotted lines indicate Confidence Intervals

Source: Authors estimations

28
As a result of the Granger-Causality Test we see that, some variables in our
model Granger affect the inflation rate some of them not. Hence, let us take a look to
the response of inflation rate to the other macroeconomic variables from the Figure 4
above. From the graph we can say that if we increase GDP growth for one time

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period, at time period 0, then in the first two quarters growth rate of the inflation

grows more quickly than otherwise. However, the response of growth of inflation

rate to money supply growth shows unclear effect which means when we increase

SE

the money supply one time, there is almost no effect to the growth of the inflation.
For the response of growth of inflation rate to growth of exchange rate and foreign

price we can say that if there is one time positive shock in foreign price level or

exchange rate then inflation level increases slightly over time. On the other hand,

RN
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when there is one time shock in the interest rate consequently inflation rate goes
down and keeps its level in the long-run as well.

TE

We got similar findings when we analyzed the accumulated responses of the

price level to other variables. Accumulated Impulse-response function results

demonstrate the effect of increase in one variable to another in general instead of

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one time shock.

29

Figure 5: Accumulated Impulse Response Function Results.

.2

.1

.1

.0

.0

-.1

-.1

-.2

-.2

-.3

.2

LY

Accumulated Response of LNPRL to LNM

.3

-.3
2

10

Accumulated Response of LNPRL to LNER

10

SE

Accumulated Response of LNPRL to LNGDP

.3

Accumulated Response of LNPRL to LNPF

.3

.3

.2

.2

.1

.1

-.1
-.2
-.3
2

10

.0
-.1
-.2
-.3
1

TE

RN
A

.0

Accumulated Response of LNPRL to LNIR

.3
.2

JI

.1

IU

.0

-.1
-.2
-.3
1

10

Note: Red dotted lines indicate Confidence Intervals

Source: Authors estimations

10

30
According to the Figure 5 above, we can see almost similar trend over time
with Figure 1. In accumulated Impulse response functions the response of price
level to the output, exchange rate and foreign price levels have same directions
which means when output, exchange rate and foreign price levels increase, then the

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growth rate of inflation starts to increase slightly over time. This implies that

increase in price levels are linked with an increase in GDP growth, exchange rate

growth and increase in foreign prices. However, it is difficult to reach a conclusion

SE

regarding the response of inflation growth to money supply growth. Because from

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RN
A

affect the inflation growth at all.

the graph we can see that, if money supply growth rises then this shock doesnt

31

Chapter 5: EMPRICAL RESULTS AND POLICY IMPLICATIONS

Based on above findings, it seems that the central bank in Uzbekistan cannot
control price levels successfully by controlling money supply. Since the main

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objective of the central bank of Uzbekistan is to maintain the stability of price level,

the central bank can implement other instruments of monetary policy, such as

interest rate policy or exchange rate policy as important devices to control and

SE

monitor the inflation rate. According to my findings, it is obvious that the reduction
in the exchange rate by CBU can reduce the high inflation rate.

There are some other policies which can also reduce the exchange rate level.

The most efficient policy in many countries is to increase the openness of the

RN
A

country, which means the country should increase its competitive export goods
which lead to decrease in exchange rate.

TE

The second effective policy instrument in controlling the money supply and
reducing the inflation is the adjustment of the interest rates. In these circumstances,

decrease in money supply and price level can sustain the economic growth of the

IU

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republic of Uzbekistan.
Third, foreign price level and interest rate movements have both short-term and

long-term effects on the rate of price level. The effect of an increase in the foreign
price level could be off-set to some extend by controlling the exchange rate. This
strategy has become a more effective way of maintaining price stability in small
open economy such as Singapore 21.

21

See Peng, T.K. and Shanmugaratnam, T. (1992) for the detail.

32

Chapter 6: CONCLUDING REMARKS

Stabilizing price levels is one of most important issues in Uzbekistan. This

paper studies how monetary policies affect price levels in Uzbekistan. For this

LY

purpose, we use three alternative time series frameworks. To do this, we tested unit

root and cointegration test then depending on the results, we analyzed monetary and

non-monetary factors of inflation for last years. We estimated VAR model,

SE

implemented the Granger Causality test and applied Impulse Response Analyses.
The present paper finds some interesting patterns after carrying out the pair

wise Granger Causality test to test whether endogenous variables can be treated as

exogenous. Our VAR model results demonstrate that lagged values of GDP growth,

RN
A

exchange rate, interest rate and foreign price can cause current price level.
Moreover, Granger Causality test shows that lagged values output, interest rate

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and foreign price can cause current price level. Alternatively, inflation rate can
affect the exchange rate.

Secondly, in order to examine the dynamic relationship between inflation rate,

IU

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price levels, and outputs, we estimate VAR model and compute IRFs.
According to the graphs of Impulse-Response Function we can say that if

growth of the output, exchange rate and foreign price level increase in one period,
then price level grows gradually over the period. However, the response of inflation
growth to money supply growth demonstrates very small negative correlation and
5 % confidence interval shows neutral area. Moreover, if we increase interest rate in
time this can lead to decrease in price level.

33
Thirdly, we can see the similar results from analyzes of the accumulated
responses of inflation rate to other variables. All variables except money supply and
interest rate have similar trend over time which means when output growth,
exchange rate and foreign price levels increase, then the growth rates of price levels

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start increasing gradually over time. However, we cannot say there is a relationship

between inflation growth and money supply growth by looking to the accumulated

impulse response function graphs.

SE

We conclude that, the current inflation rate is explained not only by money
supply but also by other monetary factors, such as the exchange rate, interest rate,

foreign price levels or output growth. This study demonstrates that for the realization

of an effective anti-inflationary policy, other monetary factors also need to be

RN
A

watched. Their elimination will help curb the inflation rate and reduce minimum
losses in the economy. To completely manage price levels through controlling only

TE

money supply is impossible. Instead, it is necessary to have administrative,

structural and institutional measures directed at overcoming the disproportions

which have arisen in the economy. We conclude that giving more consideration to

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both past and forecasted macroeconomic variables in the setting operation procedure

IU

would improve policy efficiency.

Furthermore, in October 2003, after more than decade of keeping its current

account unconvertible, the Government of the Republic of Uzbekistan announced

current account convertibility. This move signaled the end of era in which the
country practiced a parallel market exchange rate and it is a welcome step in the
development of an efficient monetary policy.

34
As a result of tight monetary policy Uzbek economy experienced the lowest
level of inflation 3.7 percent annually in 2004 and amounted 7.1 percent for 2009.
Past recent years prices strongly affected by non-monetary factors such as dramatic
seasonal fluctuations, cost of monopoly, cost-push inflation and wage increases.

LY

Of course, this research cannot be regarded as the final word on this issue

IU

JI

TE

RN
A

SE

because of the limitations of the approach.

35

APPENDICES
Appendix 1: OLS Method Estimation Results

IU

JI

TE

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

2.74
0.05
0.08
0.03
0.62
0.01

N
Prob.

0.0000
0.0001
0.0000
0.0000
0.0000
0.1917

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

6.87
0.75
-2.17
-1.96
-2.09
1.11

L
0.99
0.99
0.08
0.33
71.06
1066.04
0.0000

t-Statistic

8.17
-4.12
7.72
13.77
-6.77
-1.32

22.37
-0.22
0.63
0.39
-4.23
-0.01

RN
A

C
Output Growth
Money Supply Growth
Exchange Rate
Foreign Price
Interest Rate

Std.
Error

Coefficient

SE

Variable

LY

Dependent Variable: Inflation Growth

Method: Least Squares
Sample: 1995Q1 2009Q4
Included observations: 60

36

Appendix 2: Vector Autoregression Estimation Results

Sample (adjusted): 1995Q3 2009Q4
Included observations: 58 after adjustments
Standard errors in ( ) & t-statistics in [ ]

Output
Growth (-1)

0.209252

-0.03634

-0.13998

-0.62404

-0.27011

[ 4.97991]

[-0.08664]

[ 0.77468]

0.084055

0.507556

-0.12565

-0.56015

[ 0.66898]
0.16964

JI

Money Supply
Growth (-1)

IU

Money Supply
Growth (-2)
Growth of
Exchange
Rate (-1)
Growth of
Exchange
Rate (-2)

Foreign Price (-1)

Interest
Rate
Growth

-0.0065

1.691285

-0.42784

-0.05631

-3.50216

[-0.08494]

[-0.11542]

[ 0.48293]

SE
-0.13799

0.630647

-0.05325

-3.20795

-0.24246

-0.38403

-0.05054

-3.14358

[ 0.90611]

[-0.56913]

[ 1.64216]

[-1.05358]

[-1.02048]

0.037159

0.052825

0.012227

-0.00886

-3.76155

-0.13731

-0.05943

-0.09414

-0.01239

-0.77059

[ 5.50783]

[ 0.27062]

[ 0.88881]

[ 0.12989]

[-0.71537]

[-4.88138]

-0.03413

-0.83624

-0.10373

-0.00532

0.030432

0.266476

-0.03069

-0.1368

-0.05921

-0.09379

-0.01234

-0.76775

[-1.11221]

[-6.11274]

[-1.75168]

[-0.05672]

[ 2.46533]

[ 0.34709]

-0.06931

0.757913

0.589047

-0.05128

0.026576

5.067075

-0.08541

-0.38076

-0.16481

-0.26105

-0.03436

-2.13687

[-0.81153]

[ 1.99052]

[ 3.57406]

[-0.19644]

[ 0.77351]

[ 2.37126]

0.029522

0.245704

0.232433

-0.25433

-0.00428

-1.18301

-0.08004

-0.35682

-0.15445

-0.24464

-0.0322

-2.00253

[ 0.36884]

[ 0.68858]

[ 1.50490]

[-1.03963]

[-0.13304]

[-0.59076]

0.088478

0.151494

-0.01967

0.926156

0.016201

-0.78

-0.04956

-0.22095

-0.09564

-0.15148

-0.01994

-1.23997

[ 1.78525]

[ 0.68566]

[-0.20571]

[ 6.11400]

[ 0.81264]

[-0.62905]

-0.07446

0.210248

0.020542

-0.13951

-0.00208

2.523594

-0.05046

-0.22498

-0.09738

-0.15424

-0.0203

-1.26259

[-1.47551]

[ 0.93453]

[ 0.21094]

[-0.90445]

[-0.10266]

[ 1.99874]

1.037631

5.664705

2.404136

2.14193

0.315917

-20.7399

RN
A

-0.0308

Foreign
Price

-0.05407

TE

Output
Growth (-2)

Growth of
Exchange
Rate

0.697078

Inflation
Growth (-2)

Money
Supply
Growth

Inflation
Growth (-1)

Output
Growth

LY

Inflation
Growth

37

-0.44464
[ 2.33364]
-1.43385

JI

-2.54382

0.169794

0.446151

0.280437

2.479659

-2.22387

-0.96259

-1.52468

-0.20066

-12.4805

[-1.14387]

[ 0.17639]

[ 0.29262]

[ 1.39754]

[ 0.19868]

-0.01266

0.016083

-0.00788

-0.02969

-0.00031

0.473986

-0.02842

-0.0123

-0.01949

[ 0.56585]

[-0.64073]

[-1.52366]

-0.00796

0.020464

0.012199

0.010726

-0.00621

-0.02767

-0.01198

[-1.28257]

[ 0.73964]

[ 1.01866]

2.679329

-14.1248

-11.264

-0.00256

-0.15951

[-0.11905]

[ 2.97160]

-0.00638
[-1.98496]

-0.00105

0.092622

-0.01897

-0.0025

-0.15527

[ 0.56546]

[-0.42141]

[ 0.59653]

1.982641

87.52793

-13.2629

-2.14138

-9.54656

-4.13219

-6.5451

-0.86141

-53.576

[ 1.25121]

[-1.47957]

[-2.72591]

[-2.02639]

[ 2.30163]

[ 1.63371]

1.00

0.99

1.00

1.00

0.99

0.62

0.99

1.00

1.00

0.99

0.51

0.78

0.15

0.37

0.01

24.57

1.00
0.04
0.03

0.13

0.06

0.09

0.01

0.74

2503.26

590.24

3331.68

977.54

392.06

6.01

129.35

42.66

91.23

64.55

182.17

-57.39

-4.01

-1.02

-2.70

-1.78

-5.83

2.43

-3.55

-0.56

-2.24

-1.32

-5.37

2.89

6.93

7.28

6.81

6.00

4.84

0.52

0.68

1.47

1.51

1.30

0.11

1.06

Determinant resid covariance (dof adj.)

Determinant resid covariance
Log likelihood
Akaike information criterion
Schwarz criterion

IU

LY

-0.49884
[-2.87439]

TE

R-squared
Adj. R-squared
Sum sq. resids
S.E. equation
F-statistic
Log likelihood
Akaike AIC
Schwarz SC
Mean
dependent
S.D. dependent

-11.1246
[-1.86432]

SE

-0.17886
[ 1.76624]

Interest Rate
Growth (-2)

-1.35904
[ 1.57606]

Interest Rate
Growth (-1)

-0.85802
[ 2.80197]

RN
A

Foreign Price (-2)

-1.98227
[ 2.85769]

8.17
1.78
491.06
-14.24
-11.47

38

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