Abstract

The macroeconomic environment in many emerging and developing economies has experienced a surge in inflation following the global economic disruptions of 2022. Rising prices for food and energy commodities, as well as exchange rate volatilities in the international supply chain, have complicated the inflationary process in many small economies. Central Asia is an important region for consideration in the context of inflationary dynamics. The region’s economies are highly vulnerable to international price shocks given their dependence on commodity exports and imported goods. Although increasing inflationary pressures across Central Asia, relatively little research has examined how these macroeconomic shocks translate into broader economic and distributional effects within the region’s economies. Understanding these relationships is particularly important in the context of rising global uncertainty and increasing vulnerability among households and economic sectors.

The main objective of this research project is to examine the inflation dynamics in Central Asia and how these dynamics affect the region’s economies. The region comprises Kazakhstan, Kyrgyzstan, and Uzbekistan. The study will cover the period from 2014 to 2024. The paper will be structured in a three-paper format.

The first paper focuses on regional heterogeneity in inflation vulnerability by considering the impact of various structural economic factors on inflation responses. In this regard, econometric models, including panel fixed effects, structural dependence indicators, and machine learning robustness tests, are employed to evaluate the impact of inflation, real wages, dependence on imports, dependence on commodities, and exchange rate changes on inflation responses in Central Asia.

The second paper focuses on the transmission channels of external price shocks on domestic inflation responses. Using time-series regression analysis, correlation analysis, and cross-country analysis are employed to evaluate the impact of changes in global food prices, changes in oil prices, and changes in exchange rates on domestic inflation responses.

The third paper investigates the distributional consequences of inflation at the household level. Using expenditure share regressions, real income erosion analysis, and inequality comparisons, it shows that inflation has a stronger impact on lower-income and rural households due to higher food expenditure shares and weaker income dynamics.

The overall contribution of these three studies is an integrated perspective linking global macroeconomic shocks, structural economic dependence, and household-level vulnerability in Central Asia. This study contributes to the macro-economic and distributional analysis literature in the area of inflation dynamics in emerging economies and offers policy relevance for building up economic resilience in Central Asia.