Phillips curve: Infl ation and NAIRU in the Russian regions

Abstract

Price stability is one of the strategic goals of the monetary policy of the Bank of Russia. A significant factor of inflationary pressure on the economy is short-term deviations of the unemployment rate from NAIRU. At the same time, the relationship between the labor market and inflationary processes at the regional level may differ significantly. This paper examines regional heterogeneity in the Russian labor market in the form of a Phillips curve. An important feature for choosing the main research method is the lack of statistical information about NAIRU. Based on the models of unobservable components using the Kalman filter, the influence of the unemployment gap on inflation in each region of the Russian Federation is estimated. The constructed models take into account the impact on inflation of the main premises of the theory of rational expectations, supply shocks and inflation lags. Conclusions were drawn that there is a significant relationship between the unemployment gap and inflation for most of the Russian regions, while the sensitivity of inflation to changes in the labor market in the country as a whole is rather weak. Regions with proinflationary and disinflationary influence from the labor market were identified.