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Analyzing Determinants of Inflation When There Are Data Limitation:The Case of Sierra Leone

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Author Info
Jan Gottschalk
Ken Miyajima
Kadima D. Kalonji
Abstract

This paper examines the determinants of inflation in Sierra Leone using a structural vector autoregression (VAR) approach to help forecast inflation for operational purposes. Despite data limitations, the paper accurately models inflation in Sierra Leone. As economic theory predicts, domestic inflation is found to increase with higher oil prices, higher money supply, and nominal exchange rate depreciation. The paper then employs a historical decomposition approach to pinpoint the sources of a marked decline in inflation in 2006 and assesses its forecasting properties. Overall, the model serves as a useful addition to the toolkit for analyzing and forecasting inflation in countries with limited data availability.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/271.

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Length: 40 pages
Date of creation: 08 Dec 2008
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Handle: RePEc:imf:imfwpa:08/271

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Related research
Keywords: Inflation ; Sierra Leone ; Data analysis ; Economic forecasting ; Oil prices ; Money supply ; Exchange rate depreciation ; Forecasting models ;

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  1. Arto Kovanen, 2006. "Why Do Prices in Sierra Leone Change So Often? A Case Study Using Micro-level Price Data," IMF Working Papers 06/53, International Monetary Fund. [Downloadable!]
  2. Kim, Soyoung, 1999. "Do monetary policy shocks matter in the G-7 countries? Using common identifying assumptions about monetary policy across countries," Journal of International Economics, Elsevier, vol. 48(2), pages 387-412, August. [Downloadable!] (restricted)
  3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May. [Downloadable!] (restricted)
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  4. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June. [Downloadable!] (restricted)
  5. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund. [Downloadable!]
  6. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  7. Christopher A. Sims, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," NBER Working Papers 0430, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Catherine A. Pattillo & Hélène Poirson & Luca Antonio Ricci, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
  9. Louis Kuijs, 2002. "Monetary Policy Transmission Mechanisms and Inflation in Slovakia," IMF Working Papers 02/80, International Monetary Fund. [Downloadable!]
  10. Kallon, Kelfala M, 1994. "An Econometric Analysis of Inflation in Sierra Leone," Journal of African Economies, Oxford University Press, vol. 3(2), pages 199-230, October.
  11. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier. [Downloadable!] (restricted)
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  12. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September. [Downloadable!] (restricted)
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