Openness-Inflation Nexus in South Caucasus Economies

Following Romer (1993), openness-inflation nexus has been subject to many empirical researches. However, South Caucasus economies are not studied yet. The aim of this research is to fill this gap in empirical literature by using multiple regression models and impulse-response function analysis for the region countries, Georgia, Armenia, and Azerbaijan, separately for the period 1996-2012. To define the level of openness, methodology in Ashra (2002) is used. Findings provide no significant impact of the openness on inflation level in all region countries, except partially Georgia. However, the direction of the relationship differs across countries because of the international trade patterns.