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Inflation Dynamics in Madagascar, 1971-2000

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Author Info
Yuan Xiao
Emilio Sacerdoti
Abstract

The paper analyzes the dynamics of inflation in Madagascar in the period 1971-2000, applying cointegration analysis and error correction modeling. The empirical results, based on quarterly data, confirm that there exists a stable money demand relationship, as well as a purchasing power relationship in the long run. The former enters the short-run dynamics of inflation and money growth, while the latter affects the short-run dynamics of the exchange rate only. We also find that an appreciation has a direct negative impact on inflation and that inflation inertia is important. In addition, we conduct FIML estimation of the system and trace the impulse responses to various shocks.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/168.

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Length: 31 pages
Date of creation: 19 Nov 2001
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Handle: RePEc:imf:imfwpa:01/168

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Keywords: Inflation ; Madagascar ; Demand for money ; Exchange rates ; Economic models ;

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  1. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June. [Downloadable!] (restricted)
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  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  3. Neil R. Ericsson, 1998. "Empirical modeling of money demand," Empirical Economics, Springer, vol. 23(3), pages 295-315. [Downloadable!] (restricted)
  4. Gunnar Jonsson, 1999. "Inflation, Money Demand, and Purchasing Power Parity in South Africa," IMF Working Papers 99/122, International Monetary Fund.
  5. Jean-Claude Nachega, 2001. "Financial Liberalization, Money Demand, and Inflation in Uganda," IMF Working Papers 01/118, International Monetary Fund. [Downloadable!]
  6. Toshitaka Sekine, 2001. "Modeling and Forecasting Inflation in Japan," IMF Working Papers 01/82, International Monetary Fund. [Downloadable!]
  7. Metin, Kivilcim, 1995. "An Integrated Analysis of Turkish Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 513-31, November.
  8. Juselius, Katarina, 1992. "Domestic and foreign effects on prices in an open economy: The case of Denmark," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 401-428, August. [Downloadable!] (restricted)
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