The hybrid Phillips curve and inflation in post-Soviet Central Asia and the South Caucasus

Abstract

Using the hybrid New Keynesian Phillips Curve, this paper provides the first multi-country estimation for Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan using quarterly data from 1996 to 2023, and continuously-updating GMM. We estimate closed- and open-economy specifications with perfect and imperfect pass-through. Inflation combines substantial backward-looking inertia with a meaningful forward-looking component: persistence is strongest in Tajikistan and Turkmenistan, while Georgia and Armenia are the most forward-oriented, and Kazakhstan is balanced. In panel estimates the backward- and forward-looking weights are about 0.55 and 0.45. Cost slopes indicate that domestic real marginal costs dominate, but imported pressures are material, accounting for about 46% of cost slopes under perfect pass-through and 41% under imperfect pass-through, with external channels especially salient in Kyrgyzstan and Tajikistan. Structural parameters imply price resets roughly every two to two and a half quarters and a high yet incomplete exchange-rate pass-through near 0.87.