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Inflation Dynamics in Yemen: An Empirical Analysis

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  • Abdullah Almounsor
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    Abstract

    Yemen has had a high and volatile rate of inflation in recent years. This paper studies the underlying determinants of inflation dynamics in Yemen using three different approaches: (i) a single equation model, (ii) a Structural Vector Autoregression Model, and (iii) a Vector Error Correction Model. The outcomes suggest that inflation dynamics in Yemen are driven by international price shocks, exchange rate depreciation, domestic demand shocks, and monetary innovations. The impact of international prices and exchange rate depreciation indicate a significant pass-through of import prices. In the short run, external shocks of international prices and the exchange rate account for most variations in inflation, but domestic shocks to money supply and domestic demand explain larger variations in the medium term.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/144.

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    Length: 23
    Date of creation: 01 Jun 2010
    Date of revision:
    Handle: RePEc:imf:imfwpa:10/144

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    Related research

    Keywords: Economic models; Prices; External shocks; Exchange rate depreciation;

    This paper has been announced in the following NEP Reports:

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    1. Kadima D. Kalonji & Jan Gottschalk & Ken Miyajima, 2008. "Analyzing Determinants of Inflation When There Are Data Limitation:The Case of Sierra Leone," IMF Working Papers 08/271, International Monetary Fund.
    2. J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
    3. Oral Williams & Olumuyiwa Adedeji, 2004. "Inflation Dynamics in the Dominican Republic," IMF Working Papers 04/29, 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.
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