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Sources of Inflation in Developing Countries

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Author Info

  • Prakash Loungani
  • Phillip Swagel

Abstract

This paper develops stylized facts about the inflation process in developing countries, focusing particularly on the relationship between the exchange rate regime and the sources of inflation. Using annual data from 1964 to 1998 for 53 developing countries, we find that money growth and exchange rate changes-factors typically related to fiscal influences-are far more important in countries with floating exchange rate regimes than in those with fixed exchange rates. Instead, inertial factors dominate the inflation process in developing countries with fixed exchange rate regimes.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/198.

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Length: 29
Date of creation: 01 Dec 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/198

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Related research

Keywords: Developing countries; Exchange rate regimes; inflation; exchange rate; money growth; exchange rates; exchange rate regime; fixed exchange rate; inflation equation; fixed exchange rate regimes; floating exchange rate; average inflation; inflation money; exchange rate changes; floating exchange rate regimes; flexible exchange rate; exchange rate movements; exchange rate shocks; increase in inflation; fixed exchange rate regime; rates of inflation; flexible exchange rate regimes; high inflation; fixed exchange rates; real exchange rate; real exchange rates; low inflation; inflation process; nominal exchange rate; flexible exchange rate regime; inflationary expectations; exchange rate depreciation; floating exchange rate regime; inflation rates; price level; inflation ? money; real exchange rate fluctuations; nominal variables; average rate of inflation; rate of inflation; effective exchange rate; nominal exchange rates; currency pegs; relative price; exchange rate pegs; nominal effective exchange rate; macroeconomic performance; inflationary policy; floating exchange rates; money supply; average exchange rate; inflation rate; price stability; inflation dynamics; inflation response; exchange rate fluctuations; high-inflation episodes; exchange rate peg; monetary economics;

References

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  1. Assaf Razin & Prakash Loungani & Chi-Wa Yuen, 2000. "Capital Mobility and the Output-Inflation Tradeoff," IMF Working Papers 00/87, International Monetary Fund.
  2. David T. Coe & C. John McDermott, 1997. "Does the Gap Model Work in Asia?," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 59-80, March.
  3. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Nov.
  4. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  5. Marta Campillo & Jeffrey A. Miron, 1996. "Why Does Inflation Differ Across Countries?," NBER Working Papers 5540, National Bureau of Economic Research, Inc.
  6. Laurence Ball & N. Gregory Mankiw, 1992. "Relative-Price Changes as Aggregate Supply Shocks," NBER Working Papers 4168, National Bureau of Economic Research, Inc.
  7. Richard Clarida & Jordi Gali, 1994. "Sources of real exchange rate fluctuations: how important are nominal shocks?," Proceedings, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, issue Apr.
  8. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall.
  9. Gary G. Moser, 1995. "The Main Determinants of Inflation in Nigeria," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 270-289, June.
  10. Peter J. Montiel, 1989. "Empirical Analysis of High-Inflation Episodes in Argentina, Brazil, and Israel," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 527-549, September.
  11. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  12. Prakash Loungani & Phillip Swagel, 1995. "Supply-side sources of inflation: evidence from OECD countries," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 515, Board of Governors of the Federal Reserve System (U.S.).
  13. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1371-95, November.
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Citations

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Cited by:
  1. Osman, Mohammad & Jean Louis, Rosmy & Balli, Faruk, 2008. "Output gap and inflation nexus: the case of United Arab Emirates," MPRA Paper 34006, University Library of Munich, Germany, revised 2009.
  2. Jeannine Bailliu & Daniel Garcés & Mark Kruger & Miguel Messmacher, 2003. "Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico," Working Papers, Bank of Canada 03-17, Bank of Canada.
  3. Catherine A. Pattillo & Paul R. Masson, 2001. "Monetary Union in West Africa," IMF Working Papers 01/34, International Monetary Fund.
  4. Ilker Domac, 2003. "Explaining and Forecasting Inflation in Turkey," Working Papers 0306, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  5. Marco Terrones & Luis Catão, 2001. "Fiscal Deficits and Inflation," IMF Working Papers 01/74, International Monetary Fund.
  6. International Monetary Fund, 2008. "Fiscal and Monetary Anchors for Price Stability," IMF Working Papers 08/121, International Monetary Fund.
  7. Christopher Bowdler & Adeel Malik, 2005. "Openness and inflation volatility: Cross-country evidence," Economics Papers 2005-W14, Economics Group, Nuffield College, University of Oxford.
  8. Domac, Ilker & Yucel, Eray M., 2004. "What triggers inflation in emerging market economics?," Policy Research Working Paper Series 3376, The World Bank.
  9. Mijiyawa, Abdoul, 2008. "Inflation and Democracy in Former Extractive Colonies Analysis with a New Instrumental Variable," Proceedings of the German Development Economics Conference, Zurich 2008 28, Verein für Socialpolitik, Research Committee Development Economics.
  10. Grand Nathalie & Dropsy Vincent, 2005. "Exchange Rate And Inflation Targeting In Morocco And Tunisia," Macroeconomics, EconWPA 0507018, EconWPA.
  11. Uma Ramakrishnan & Athanasios Vamvakidis, 2002. "Forecasting Inflation in Indonesia," IMF Working Papers 02/111, International Monetary Fund.
  12. corrinne ho & robert n mccauley, 2004. "Living with flexible exchange rates:," International Finance, EconWPA 0411003, EconWPA.

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