966
Title: Quarterly Projection Model of Azerbaijan (AzIM 1.0)
Serial number: 01/2024
Author(s): Tural Yusifzada, Nazrin Ramazanova, Ramiz Rahmanov, Vugar Ahmadov
Language: English
Date: 2024
Abstract: This paper presents the first version of the Azerbaijan Quarterly Projection Model (AzIM 1.0), a forward-looking, open-economy gap model. The model is designed for forecasting, simulations, and monetary policy analysis. It consists of five main building blocks: (i) aggregate demand block consisting of the non-oil output gap, (ii) a Phillips curve (inflation forecasting) block modeling inflation and inflation expectations, (iii) a risk adjusted uncovered interest rate parity block serving as the nominal anchor; (iv) Taylor rule (short-term interest rate) block that defines the monetary policy reaction function; and (v) an external sector block. AzIM 1.0 is based on a semi-structural New Keynesian framework, which has been adapted to reflect the specific characteristics of the Azerbaijani economy, particularly the transmission mechanisms and formulation of the monetary policy. The model calibration is informed by econometric estimations for Azerbaijan, insights from international literature and comparable country experiences, as well as historical trends. To assess the model’s robustness and adequacy, we conduct impulse response analysis, equation decomposition, and in-sample simulations.
Key words: Quarterly Projection Model, the Azerbaijani economy, forecasting and policy analysis, monetary policy
JEL classification: E32, E37, E47, E52
