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Money Demand and Inflation in Madagascar

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  • Koffie Ben Nassar
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    Abstract

    This paper uses a two-sector model to estimate the relationship between prices, money, and the exchange rate in Madagascar during the period 1982-2004. The estimated model, using quarterly data, finds a stable long-run relationship among monetary aggregates, domestic prices, real income, and foreign interest rates. In addition, the error-correction model shows that changes in the monetary aggregates, the exchange rate, and foreign interest rates exert a significant impact on inflation. The results also suggest that a disequilibrium in the money market has a lasting impact on inflation. The paper concludes with policy recommendations.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/236.

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    Length: 25
    Date of creation: 01 Dec 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/236

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    Related research

    Keywords: Prices; Money markets; Exchange rates; Interest rates; Economic models; inflation; monetary policy; money demand; monetary fund; money balances; real money; money stock; money growth; money market; quantity theory of money; central bank; inflation equation; foreign currency; demand for money; money supply; price level; increase in inflation; monetary aggregates; quantity theory; theory of money; reserve requirement; inflation dynamics; monetary policy framework; foreign exchange; price elasticity; monetary authorities; lower inflation; aggregate demand; price stability; moderate inflation; monetary policy instruments; real output; inflationary expectations; domestic money market; expansionary monetary policy; tight monetary policy; high inflation; treasury bonds; forecasting inflation; inflation objective; monetary targeting; inflationary pressures; stock of money; macroeconomic stability; terms of trade; nominal variables; terms of trade shocks; inflationary impact; domestic monetary policy;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Laura Papi & G. C. Lim, 1997. "An Econometric Analysis of the Determinants of Inflation in Turkey," IMF Working Papers 97/170, International Monetary Fund.
    2. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Jeanā€Paul Azam, 2001. "Inflation and Macroeconomic Instability in Madagascar," African Development Review, African Development Bank, African Development Bank, vol. 13(2), pages 175-201.
    4. Jean-Claude Nachega, 2001. "A Cointegration Analysis of Broad Money Demand in Cameroon," IMF Working Papers 01/26, International Monetary Fund.
    5. Wojciech Maliszewski, 2003. "Modeling Inflation in Georgia," IMF Working Papers 03/212, International Monetary Fund.
    6. Burdekin, R.C.K. & Siklos, P.L., 1997. "Exchange Rate Regimes and Shfts in Inflation Persistence: Does Nothing Else Matter?," Working Papers, Wilfrid Laurier University, Department of Economics 97-2, Wilfrid Laurier University, Department of Economics.
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
    8. repec:fth:oxesaf:2001-2 is not listed on IDEAS
    9. Rodolphe Blavy, 2004. "Inflation and Monetary Pass-Through in Guinea," IMF Working Papers 04/223, International Monetary Fund.
    10. Louis Kuijs, 1998. "Determinants of Inflation, Exchange Rate, and Output in Nigeria," IMF Working Papers 98/160, International Monetary Fund.
    11. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
    12. Oral Williams & Olumuyiwa Adedeji, 2004. "Inflation Dynamics in the Dominican Republic," IMF Working Papers 04/29, International Monetary Fund.
    13. Mangal Goswami & Oya Celasun, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 02/205, International Monetary Fund.
    14. Gary G. Moser, 1995. "The Main Determinants of Inflation in Nigeria," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 270-289, June.
    15. Tim Callen & Dongkoo Chang, 1999. "Modeling and Forecasting Inflation in India," IMF Working Papers 99/119, International Monetary Fund.
    16. repec:fth:oxesaf:2001-02 is not listed on IDEAS
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