«Money and Credit»: Why Inflation Differs Across Regions of Russia and How to Improve Its Forecasting
The third issue of the quarterly scientific journal of the Bank of Russia «Money and Credit» was released in 2024.
Price growth rates in different regions of Russia vary, which can hinder effective monetary policy. However, an analysis of the dynamics of food inflation in Russian regions indicates a convergence of price growth rates for food products, that is, a reduction in differences. In this case, the convergence is weaker in the regions of the Far Eastern and North Caucasian federal districts, which may be explained by geographical remoteness (in the case of the Far East), a large share of the informal sector (for the regions of the North Caucasus), and low penetration of network retail. This speaks to the necessity of state policy measures, such as enhancing transport and logistics connectivity between regions.
The consumer basket, on which the consumer price index is based, includes numerous categories of goods and services, and prices in each category are determined by their own set of factors. To account for the variety of factors when forecasting inflation, it makes sense to forecast it separately for each category and then aggregate the indicators into a general forecast, researchers concluded. Their experiments on Russian data showed that with this approach, the forecast can be much more accurate than with the classical method (when the inflation indicator is forecasted as a whole).
During global crises— the Great Recession of 2008, the European debt crisis of 2011-2012, and the pandemic of 2020 — in many countries, stock market regulators resorted to measures such as the prohibition of short selling to stabilize the market. However, this step can have negative consequences: an analysis of European stock market data for 2020 indicates that the ban on short selling leads to an increase in market risk metrics, on the basis of which bank capital adequacy is calculated. As a result, the vulnerability of the banking system increases.
The level of competition in the banking sector affects all consumers of financial services—their costs, income, and lending opportunities. An analysis of competition in various segments of the financial market, studies of its impact on social welfare and the effectiveness of monetary policy were presented at the XII seminar of the Bank of Russia, the New Economic School, and the base chair of the Bank of Russia at HSE University, a review of which is published in the September issue of the journal.
All articles of the journal «Money and Credit», No. 3 for 2024, can be found on the journal’s website.