How Do Oil Price Fluctuations Influence Exchange Rates In Kazakhstan, And How Do Changes In Exchange Rates Affect Inflation, The Services Sector, And The Goods Sector (Food And Non-Food Products)?

Abstract

The thesis effectively explores the process of oil price shocks spreading to the Kazakhstani economy, examining the effectiveness of the Inflation Targeting (IT) regime implemented in 2015. The research uses a monthly dataset with a period of 2011 to 2024 to estimate exchange rate pass-through (ERPT), with linear interpolation frequency conversion. This is supplemented with an enhanced Taylor Rule estimation with Ordinary Least Squares (OLS) to assess the policy reactive mechanism of the central bank. The empirical findings give strong data that the managed float transition was effective in anchoring inflation expectations that cumulative ERPT coefficient decreased substantially between 0.231 in the pre-float regime and 0.098 in the post-float regime. Nonetheless, the overlay analysis shows the highly sectoral heterogeneity. Tradable sectors, namely Non-Food Goods (coefficient: 0.156) and Food Products (coefficient: 0.125), are very much exposed to the impact of the depreciation of the currency, but the Services sector (coefficient: 0.042) is statistically immune to the external shocks. In terms of asymmetric adjustments, Rocket and Feather effect is identified in the analysis as the prices soar up in depreciation but may be sticky in appreciations. Nonetheless, formal Wald tests have a p-value of 0.55 meaning that this asymmetry cannot be statistically significant at standard levels probably because of high historical volatility. Moreover, the Taylor Rule estimates identify statistically significant "Fear of Floating" (𝑝 < 0. 10), which denotes the fact that the National Bank actively increases interest rates in case of depreciation to reduce inflationary pressure. The research indicates that the overall sensitivity of the IT framework to the oil shocks has been reduced, but that due to the structural import dependence, the exchange rate management must still be maintained.