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The role of regional and sectoral factors in Russian inflation developments

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Abstract

This paper examines the relative roles of region-specific and commodity-specific developments in the consumer price setting in Russia. For this purpose, we estimate a dynamic hierarchical factor model using inflation rates across regions and sectors. We found little evidence of association between region-specific factors and inflation developments, although there are several regions (mostly located in the Far East and North Caucasus) where the idiosyncratic component may contribute substantially. Conversely, the role of cross-commodity relative price changes in inflation developments in Russia is substantial.

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Notes

  1. Chechen Republic, Republic of Crimea and Sevastopol are not included due to the lack of data. The regions consisting of several autonomous okrugs (Tyumen Oblast, Arkhangelsk Oblast) are treated as single entities. Additionally, the following five time series are excluded for the same reason: “Sanatoria and Health-Improvement Services” in Kalmykia, Amur Oblast and Chucotka Autonomous Okrug, “Alcoholic Beverages” in Ingushetia and “Passenger Cars” in Chucotka Autonomous Okrug.

  2. https://fedstat.ru/indicator/31074.

  3. All time series are in the form of standardized seasonally adjusted monthly growth rates. Seasonal adjustment was made in JDemetra+ using the TRAMO/SEATS model (RSA3 specification). The results of the panel and individual ADF tests (with lag length selected using BIC criteria) indicate that the series are stationary.

  4. Admittedly, the subcomponents of CPI that we use are still aggregates, and their calculation involves weighting (albeit at a different level and presumably with a smaller distortion effect).

  5. The aggregates are constructed as follows. Sectoral aggregates are calculated by averaging inflation across regions using weights based on the gross regional product in 2015 (the use of population-based weights yields similar results). Regional aggregates are calculated by averaging inflation across sectors in accordance with the corresponding composition of consumption spending in 2015.

  6. Note that in our model, the impact of changes in the common factor on the inflation series in the cross-section is constituted by the combination of all factor loadings \( \lambda_{H} \), \( \lambda_{G} \), \( \lambda_{FH} \), \( \lambda_{FG} \).

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Acknowledgements

The views expressed in this paper are those of the authors and do not necessarily represent the position of the Bank of Russia. We are grateful to Yuri Perevyshin, Laura Solanko, the anonymous referees and the participants of the seminars at the Bank of Russia and at the Bank of Finland for their helpful comments and suggestions.

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Authors and Affiliations

  1. Bank of Russia, Neglinnaya 12, Moscow, Russia, 107016

    Elena Deryugina, Natalia Karlova, Alexey Ponomarenko & Anna Tsvetkova

Authors
  1. Elena Deryugina
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  2. Natalia Karlova
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  3. Alexey Ponomarenko
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  4. Anna Tsvetkova
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Corresponding author

Correspondence to Alexey Ponomarenko.

Appendix

Appendix

See Tables 1, 2 and Figs. 11, 12, 13.

Fig. 13
figure 13

Decomposition of variance of the aggregate inflation rate obtained under an alternative model’s specification

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Deryugina, E., Karlova, N., Ponomarenko, A. et al. The role of regional and sectoral factors in Russian inflation developments. Econ Change Restruct 52, 453–474 (2019). https://doi.org/10.1007/s10644-018-9232-y

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