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© 2022 International Monetary Fund
WP/22/229
IMF Working Paper
Middle East and Central Asia Department
Uzbekistan’s Transition to Inflation Targeting
Prepared by Moayad Al Rasasi and Ezequiel Cabezon
Authorized for distribution by Ron van Rooden
November 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: Uzbekistan has significantly improved its monetary policy framework during 2017–21. Nevertheless, the transition to inflation targeting is challenging as the country is going through a period of deep structural reforms. Therefore, the Central Bank of Uzbekistan (CBU) will have to monitor structural reforms and calibrate monetary policy accordingly. This paper identifies institutional and structural gaps, and assesses the effectiveness of monetary policy transmission. Institutional gaps are assessed using institutional indexes while transmission is assessed using VARs. It concludes that in the coming years, reforms will need to continue, to further improve the CBU’s governance and independence, develop financial markets, but most of all to reduce the still large footprint of the state in the financial sector as well as in the overall economy.
RECOMMENDED CITATION: Moayad Al Rasasi & Ezequiel Cabezon, 2022. “ Uzbekistan’s Transition to Inflation Targeting,” IMF Working Papers 2022/229, International Monetary Fund.
| JEL Classification Numbers: | E31, E40, E52, E58 |
| Keywords: | Uzbekistan; Inflation targeting; Monetary policy |
| Author’s E-Mail Address: | ecabezon@imf.org; malrasasi@imf.org |
| JEL Classification Numbers: | E31, E40, E52, E58 |
| Keywords: | Uzbekistan; Inflation targeting; Monetary policy |
| Author’s E-Mail Address: | ecabezon@imf.org; malrasasi@imf.org |
Title Page
WORKING PAPERS
Uzbekistan’s Transition to Inflation Targeting
Prepared by Moayad Al Rasasi and Ezequiel Cabezon1
Contents
The transition in 2017-21
Background
IT Framework: General Considerations
Improvements in Uzbekistan’s Monetary Policy Framework 2017-21
Monetary Policy Outcomes in Uzbekistan
Assessing Institutions and Transmission
Assessing Preconditions
Institutional Preconditions Focus
Transmission Mechanism Preconditions Focus
Challenges and Recommendations
Increasing Credibility
Improving Transmission of Monetary Policy
Conclusion
Annex I. Detail of Inflation Targeting Conditions
References
BOXES
1. Inflation Developments
2. Selected Interest Rates
3. VAR Impulse Responses
FIGURES
1. Economic Indicators Pre and Post Inflation Targeting Implementation
3. Elasticity of Interest Rate to Monetary Policy Rates
4. Country Experiences with Dollarization Policies and Measures
TABLES
Table 1. Economic Indicators Pre and Post Inflation Targeting Implementation
Table 2. Modified Cukierman Index of Central Bank Independence
Table 3. Effect of Monetary Policy Rates on Retail Interest Rates
Table 4. Country Experiences with Dollarization Policies and Measures
“The author(s) would like to thank” footnote, as applicable.
“We would like to extend our sincere appreciation to Ron van Rooden for his guidance, support and encouragement to pursue this project. We also would like to thank Christen Richmond for the discussion on the early draft of the paper and the staff of the Central Bank of Uzbekistan in particular to Nodir Achilov, Behzod Hamraev, and Bobir Abubakirov. We also acknowledge very useful discussion with Kevin Ross, Galina Kostina, Lawrence Dwight, Subir Lall, Darryl Kind, Marco Casiraghi, Stephen Mulena, Kelly Ecklhold, Altynai Aidarova, Manmohan Singh, Francesco Grigoli, and participants at the MCD Discussion.