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Inflation targeting and economic growth: Dichotomy or correlation?

Vol. 25, Iss. 4, APRIL 2019

Received: 31 January 2019

Received in revised form: 14 February 2019

Accepted: 1 March 2019

Available online: 26 April 2019

Subject Heading: MONETARY ACCOMMODATION

JEL Classification: E52, E62

Pages: 804–820

https://doi.org/10.24891/fc.25.4.804

Volkov I.I. Plekhanov Russian University of Economics (PRUE), Moscow, Russian Federation
winner.06@mail.ru

ORCID id: not available

Skarednov E.V. Plekhanov Russian University of Economics (PRUE), Moscow, Russian Federation
skarednov_ugen@mail.ru

ORCID id: not available

Subject The article studies whether the inflation targeting policy of the Central Bank of Russia can coexist with the macroeconomic intention of spurring the GDP growth.
Methods The research is mainly based on tools of mathematical, formal and dialectic logic, analysis and synthesis, induction and deduction.
Results We conducted the vector regression analysis to evaluate the correlation of GDP and monetary tools with 2014–2016. Key tools of inflation targeting have a limited impact on the economic growth level. We considered how measures of the Central Bank of Russia in 2014–2016 influenced the efficiency of the budgetary policy. To evaluate what effect inflation targeting had on the economic growth in 2017–2018, we applied the equation of fiscal restrictions imposed by the government. This type of monetary policy was found to considerably stabilize macroeconomic conditions in Russia for the said period. The economy and fiscal deficit may be much better improved if the difference between inflation (not exceeding the target) and key rate is as little as possible provided the economic growth is highly sensitive to inflation and key rate.
Conclusions The research determined limits and prospects for applicability of inflation targeting to stimulate business activities in Russia in the short- and mid-run. The findings can be used to formulate provisions on the regulation of monetary policy for spurring the economic growth.

Keywords: inflation targeting, economic growth, monetary policy, fiscal policy, transmission mechanism

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