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

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Author Info

  • Kadima D. Kalonji
  • Jan Gottschalk
  • Ken Miyajima

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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Bibliographic Info

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

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Length: 40
Date of creation: 01 Dec 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/271

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Related research

Keywords: Data analysis; Economic forecasting; Oil prices; Exchange rate depreciation; Forecasting models; inflation; monetary policy; central bank; money supply; aggregate demand; price level; monetary fund; forecasting inflation; inflation rate; annual inflation; foreign exchange; open market operations; money growth; inflation dynamics; expansionary monetary policy; price inflation; increase in inflation; annual inflation rate; inflation response; monetary zone; high inflation; money balance; monetary economics; reduction in inflation; discretionary monetary policy; monetary transmission; money demand; actual inflation; real variables; monetary policy reaction function; monetary transmission mechanism; rational expectations; wage-price; monetary restraint; monetary policy transmission mechanism; monetarism; monetary policy transmission mechanisms; discount rates; monetary target; monetary statistics; adaptive expectations hypothesis; monetary policy objectives; government securities; adaptive expectations; price stability; monetary reaction function; nominal interest rates; terms of trade; effect of money growth; monetary policy operations; inflation targeting; intermediate monetary target; persistent high inflation;

This paper has been announced in the following NEP Reports:

References

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  1. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
  2. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, vol. 70(2), pages 250-57, May.
  3. Louis Kuijs, 2002. "Monetary Policy Transmission Mechanisms and Inflation in Slovakia," IMF Working Papers 02/80, International Monetary Fund.
  4. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.
  5. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
  6. Arto Kovanen, 2006. "Why Do Prices in Sierra Leone Change so often? A+L3180 Case Study Using Micro-Level Price Data," IMF Working Papers 06/53, International Monetary Fund.
  7. 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.
  8. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  9. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  11. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  12. 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.
  13. Kallon, Kelfala M, 1994. "An Econometric Analysis of Inflation in Sierra Leone," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 3(2), pages 199-230, October.
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Citations

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Cited by:
  1. Tidiane Kinda, 2011. "Modeling Inflation in Chad," IMF Working Papers 11/57, International Monetary Fund.
  2. Abdullah Almounsor, 2010. "Inflation Dynamics in Yemen," IMF Working Papers 10/144, International Monetary Fund.

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