International inflationary episodes: a survival analysis

Instances of acute and sustained inflation pose a challenge in transition and developing economies, in particular as they tend to render economic development strategies vulnerable. Thus, a thorough understanding of inflationary episodes is critical. Using parametric hazard models, this examines the question of duration dependence of international inflationary episodes (IE) and also the influence of key covariates on the likelihood of their survival. From a sample of eleven historical high inflation episodes, fifteen recent hyperinflation cases, and forty-five international IE, the statistical evidence overall illustrates a case of positive duration dependence, indicating that IE are more likely to terminate as they grow older, and vice versa. The study’s findings also suggest that variations in covariates including cumulative inflation geometric (annual) rate of inflation, and maximum (annual) inflation tend to have varying and statistically significant influence on the behavior of international IE durations. While not supporting the theoretical notion of an everincreasing inflation rate or inflation bubble, the finding of positive duration dependence in IE is not a justification for a “laissez-faire” policy by central banks. In fact, significant redistribution of wealth and increased inefficiency will result from IE, and thus credible monetary and fiscal reforms are fundamental for achieving economic stabilization and sustainable growth.