In this article, the econometric model of the inflation processes in the Republic of Belarus is discussed, which makes it possible to explain the major factors determining the dynamics of the GDP deflator, consumer price index and producer price index during the period of 1994-2003. For estimation of the model, the author uses statistical tools of the non-stationary time series econometrics: Cointegration analysis and error-correction models. The model has good statistical properties. It demonstrates the stability of the coefficients and enables one to conduct an analysis of the various choices in the field of monetary and foreign exchange policies and also labor remuneration, prices and tariffs.

Under the conditions of macroeconomic instability that is currently typical of the Republic of Belarus, economic entities and individuals periodically face the issue of forecasting future inflation rates. The results of their decisions and, accordingly, related real losses and profits depend upon the accuracy of future inflation assessments. Forecasting inflation is also of critical importance for the monetary authorities. Taking into account the monetary nature of inflation, the central bank reconciles its short-term monetary and foreign exchange policies focused on stabilizing the output and unemployment rate with achieving a low level of inflation in the long run. Since these two objectives often contradict each other, it is necessary to estimate quantitatively, the effects of the main monetary policy instruments on the inflation rates.

Forecasting inflation is a non-trivial problem and, taking into account the complexity of the inflation processes mechanisms, is practically impossible without applying special economic-mathematical models. Such models must reflect the main transmission channels through which monetary policy impacts prices and take into account a range of effects of the non-monetary factors; be dynamic in nature which makes it possible to trace various temporal effects of the inflation processes development; be sufficiently accurate in describing the actual situation, and, at the same time, be understandable as much as possible and simple in use.

Model of Inflation Processes in the Republic of Belarus, econometric model, inflation processes, GDP deflator, statistical tools, Cointegration analysis, error-correction models, future inflation assessments, short-term monetary and foreign exchange policies.