Dynamics of inflation in Russia and the USA (2000–2021)

Abstract

The subject matter of this research paper is price inflation in Russia and the United States as measured by the consumer price index from January of 2000 up to December of 2021 (264 monthly observations for each country). The research objective is to test the hypothesis of non-stationarity of inflation in both countries and the hypothesis of statistical independence of inflation in Russia from inflation in the United States. Within the first hypothesis we performed the unit root test with one structural break and estimated a long-memory parameter and persistence level of inflation. In both countries inflation appeared to be non-stationary, highly persistent and having a long memory. Within the second hypothesis Granger pair causality and Engle-Granger cointegration tests were performed. Inflation in Russia was not Granger-caused by US inflation, and both were not cointegrated. The major goal of monetary policy of the Bank of Russia and the Federal Reserve System is low and stable inflation. To achieve this goal both regulators use a variety of tools the primary one being change of targets for short-term interest rates on interbank money market to affect spending decisions and prices. But the tool is double edged sword. Low and stable inflation comes at the expense of economic growth.