Estimating the Threshold Level of Inflation for Russia: Evidence from a Panel Threshold Model

Abstract

The study provides estimates of the threshold level of inflation for Russia based on panel threshold models. This paper’s aim is to estimate the «optimal» level of inflation and to determine the number of thresholds for Russia within, unlike previous studies, the framework of narrower samples and at shorter time intervals. To achieve these goals (besides evaluation of standard threshold model) authors also propose modification of model, allowing two thresholds, and apply likelihood ratio test to verify which model specification is optimal. The results indicate that the target inflation rate of 4% in general lies within the threshold estimates obtained in the paper. This is considered as evidence of the fact that inflation target chosen by the monetary authorities in Russia is consistent with the theory and data.