THE ECONOMETRIC STUDY OF INFLATION VOLATILITY FROM THE PERSPECTIVE OF MONETARY POLICY OPTIMISATION

Abstract

The purpose of this research is to identify the inflation process volatility from the perspective of monetary policy decision optimisation. Following the study of the literature, the theoretical and conceptual aspects have been defined, which implies the central banks attention need on the inflation volatility and its associated effects in order to achieve the proposed objectives. Thus, the prediction of price volatility would not only reduce inflation, but would also make monetary policy much more efficient. The strength of the study is focused on modelling the inflation volatility in the Republic of Moldova by applying the GARCH econometric model. Based on the study, we concluded that during 1995-2018 in the Republic of Moldova, the inflationary process recorded the alternation of periods with increased and reduced volatility. It should be mentioned that the changes generated by the volatility from the previous periods are significant, and with the inflation volatility increase, the price instability persists.

Keywords

• monetary policy
• central bank
• inflation
• garch model