This paper attempts to estimate a model of inflation in Tajikistan using the Johanson cointegration approach and single equation error correction model. It also develops a methodology for creating monthly real output series. The paper investigates both the short run dynamic behaviour of inflation and the long run relationship of prices with their determinants. There is evidence that in the long run prices are determined by exchange rate, money, real output and interest rates, and in the short run by values of money growth and inflation, and current and past values of output growth and interest rate changes. The speed of adjustment of prices to their long run equilibria is determined. The results suggest controlling excessive money growth and stabilizing excessive exchange rate fluctuations should be the key ingredients of monetary policy in controlling inflation of the country.
