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Inflation and Conflict in Iraq

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  • Udo Kock
  • David A. Grigorian

Abstract

Containing inflation has turned out to be one of the most challenging aspects of economic management in Iraq. This paper posits that conventional as well as unconventional factors explain inflation dynamics in the recent past. We build a theoretical model based on the insights into the workings of socialist economies under supply shortages provided by Shleifer and Vishny (1992) to help explain price dynamics. In the model, strategic behavior of the fuel distribution monopolist results in fuel shortages, with implications for fuel and non-fuel inflation. A number of step-wise adjustments of administered prices for fuel products since December 2005 offer an interesting experiment to help study this behavior. Our findings show that inflation may have been influenced by shortages in fuel and non-fuel commodity supplies, which themselves are driven by violence and rent-seeking.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/159.

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Length: 24
Date of creation: 01 Jul 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/159

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Related research

Keywords: Commodity prices; Commodity markets; Oil product prices; Shadow economy; inflation; black market; money supply; monetary policy; price level; monetary fund; high inflation; price inflation; rate of inflation; inflation dynamics; terms of trade; monetary transmission mechanism; macroeconomic stability; monetary transmission; central bank; value of money; macroeconomic analysis; inflationary pressures; inflation rate; demand for money; foreign exchange; foreign currency; money growth; inflation equation;

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