Monetary Dynamics and Inflation in an Emerging Economy: Evidence from a Vecm Approach Incorporating Consumer Expectations
Main Article Content
This research examines the dynamics of inflation in the macroeconomic framework by emphasizing the role of monetary factors and expectations in the formation of inflation. This research uses the VECM econometric approach with data from the time series for the period 2014Q1–2025Q4. The analysis stages include stationariness test (ADF), optimal lag determination, VAR stability test, Johansen cointegration test, VECM estimation, as well as Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) analysis. Empirical results show that in the short-term inflation was influenced by inertia factors and consumer expectations, while in the long term the money supply and consumer expectations are the main determinants of inflation. In addition, there is a relatively rapid adjustment mechanism towards long-term equilibrium, as well as the increasing contribution of external variables in explaining inflation variations as the time horizon increases. This study concludes that inflation is not only a monetary phenomenon, but also greatly influenced by people's expectations. Implicitly, monetary policy needs to focus not only on controlling liquidity, but also on managing expectations through credibility and policy communication. These findings confirm the importance of a comprehensive approach in maintaining price stability.
Bulut, Umit. (2018). Inflation Expectations in Turkey: Determinants and Roles in Missing Inflation Targets. Journal of Central Banking Theory and Practice, 7(3), 73–90.
Claus, Edda, & Nguyen, Viet Hoang. (2020). Monetary policy shocks from the consumer perspective. Journal of Monetary Economics, 114, 159–173. https://doi.org/10.1016/j.jmoneco.2019.03.012
Coibion, Olivier, Gorodnichenko, Yuriy, & Weber, Michael. (2021). Monetary policy communications and their effects on household inflation expectations. In NBER Working Paper Series. https://doi.org/10.3386/w25482
Cole, Stephen J., & Milani, Fabio. (2016). The Misspecification of Expectations in New Keynesian Models: A DSGE-VAR Approach. In CESifo Working Paper. Munich: Center for Economic Studies and ifo Institute (CESifo).
D’Acunto, Francesco, Malmendier, Ulrike, Ospina, Juan, & Weber, Michael. (2019). Exposure to daily price changes and inflation expectations. In NBER Working Paper Series. https://doi.org/10.3386/w26237
Doser, Alexander, Nunes, Ricardo, Rao, Nikhil, & Sheremirov, Viacheslav. (2023). Inflation expectations and nonlinearities in the Phillips curve. Journal of Applied Econometrics, 38(4), 453–471. https://doi.org/10.1002/jae.2963
Dräger, Lena. (2015). Inflation perceptions and expectations in Sweden – Are media reports the missing link? Oxford Bulletin of Economics and Statistics, 77(5), 681–700. https://doi.org/10.1111/obes.12078
Hommes, Cars, Massaro, Domenico, & Weber, Matthias. (2015). Monetary Policy under Behavioral Expectations: Theory and Experiment. In Tinbergen Institute Discussion Paper. Amsterdam: Tinbergen Institute.
Hsing, Yu. (2021). Response of Domestic Prices to Exchange Rate Movements in Argentina. Business and Economic Research, 11(2), 218–226. https://doi.org/10.1596/1813-9450-8780
Kilian, Lutz, & Zhou, Xiaoqing. (2020). Oil Prices, Gasoline Prices and Inflation Expectations: A New Model and New Facts. In CESifo Working Paper. Munich: Center for Economic Studies and ifo Institute (CESifo).
Mlangeni, Thando, & Buthelezi, Eugene Msizi. (2024). Monetary policy and inflation expectations: impact and causal analysis of heterogeneous economic agents’ expectations in South Africa. Journal of Applied Economics, 27(1), 1–28. https://doi.org/10.1080/15140326.2023.2289724
Nasir, Muhammad Ali, Balsalobre-Lorente, Daniel, & Huynh, Toan Luu Duc. (2020). Anchoring inflation expectations in the face of oil shocks & in the proximity of ZLB: A tale of two targeters. Energy Economics, 86, 104662. https://doi.org/10.1016/j.eneco.2020.104662
Pfajfar, Damjan, & Žakelj, Blaž. (2015). Inflation Expectations and Monetary Policy Design: Evidence from the Laboratory. In Finance and Economics Discussion Series. https://doi.org/10.17016/FEDS.2015.045
Siami-Namini, Sima, & Hudson, Darren. (2019). Inflation and income inequality in developed and developing countries. Journal of Economic Studies, 46(3), 611–632. https://doi.org/10.1108/JES-02-2018-0045
Szyszko, Magdalena, & P?uciennik, Piotr. (2018). Factors Driving Consumers’ Inflation Expectations: Does the Central Bank’s Inflation Forecast Really Matter? Eastern European Economics, 56(5), 432–459. https://doi.org/10.1080/00128775.2018.1467781
Szyszko, Magdalena, & Rutkowska, Aleksandra. (2019). Inflation Expectations of European Consumers after the Crisis. Do Macro Variables Drive Expectations? Eastern European Economics, 57(4), 1–24. https://doi.org/10.1080/00128775.2019.1610896
