Vector Auto Regression Model of Inflation in Mongolia

Abstract

This paper investigates the relationship between inflation, real money, exchange rate and real output based on data from 1997 to 2005. Vector auto regression analysis presented to establish the relationship. The results of the research indicate that the dynamics of inflation are affected by previous month exchange rate changes and money growth. It means that there is a need to lessen the influence of exchange rate expectation on economy and to improve efficiency of management of the monetary instrument.