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Belarusian authorities contemplate transiting to inflation targeting. The paper suggests a small structural model at the core of the forecasting and policy analysis system. A well-researched canonical structure of Berg, A., Karam, P. and D. Laxton (2006) is extended to capture specifics of Belarusian economy and macroeconomic policy. The modified model’s policy block reflects a monetary targeting regime and allows for transition from it to an interest-rate-based framework. Adding wages, directed lending and dollarization allow for studying implications of activist wage policy, state program lending, and dollarization for macroeconomic stability and the strength of the policy transmission mechanism.

Belarus --- Republic of Belarus --- Rėspublika Belarusʹ --- Republic of Byelarusʹ --- Respublika Byelarusʹ --- Byelarus --- République de Bélarus --- República de Belarús --- Republik Belarus --- Weissrussland --- White Russia --- Belorussia --- Belorus --- Biélorussie --- Bielorussia --- Białoruś --- Беларусь --- Рэспубліка Беларусь --- Республика Беларусь --- ベラルーシ --- Berarūshi --- Byelorussian S.S.R. --- Economic conditions --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Production and Operations Management --- Money and Interest Rates: Forecasting and Simulation --- Monetary Policy --- Quantitative Policy Modeling --- Price Level --- Deflation --- Macroeconomics: Production --- Demand for Money --- Macroeconomics --- Monetary economics --- Currency --- Foreign exchange --- Exchange rates --- Inflation targeting --- Output gap --- Demand for money --- Prices --- Monetary policy --- Production --- Money --- Economic theory --- Belarus, Republic of

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Two types of currency in circulation models are identified: (1) a first generation derived from the theory of money demand and (2) a second generation aimed at producing daily forecasts of currency in circulation. In this paper, we transform the currency demand function into a VAR to capture the dynamic link between interest rates and the demand for cash. We also apply ARIMA modeling to forecast the daily currency in circulation for Brazil, Kazakhstan, Morocco, New Zealand, and Sudan. Our empirical work shows that some of the conclusions in the economic literature on the impact of interest rates on the demand for currency do not necessarily hold, and that central banks would benefit from running both generations of currency in circulation models. The fundamental longer-run determinants of the demand for cash are distinct from its short-run determinants.

Monetary policy. --- Monetary management --- Economic policy --- Currency boards --- Money supply --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- Model Construction and Estimation --- Forecasting and Other Model Applications --- Demand for Money --- Money and Interest Rates: Forecasting and Simulation --- Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Interest Rates: Determination, Term Structure, and Effects --- Portfolio Choice --- Investment Decisions --- Monetary economics --- Banking --- Finance --- Currencies --- Central bank policy rate --- Liquidity forecasting --- Liquidity --- Money --- Financial services --- Asset and liability management --- Commercial banks --- Financial institutions --- Banks and banking --- Interest rates --- Economics --- New Zealand