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Hitchhiker’s Guide to Inflation in Libya

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  • Serhan Cevik
  • Katerina Teksoz

Abstract

This paper presents an empirical investigation of inflation dynamics in Libya over the period 1964–2010, using cointegration and error correction models. While inflation inertia is found to be a key determinant of consumer price inflation, the econometric results indicate that government spending, money supply growth, global inflation, and exchange rate pass-through play central roles in the inflation process. These findings are broadly consistent with the experience of other countries that are natural resource dependent. We also find evidence that the imposition and subsequent removal of international sanctions on Libya had a noteworthy impact on consumer price inflation. Collectively, our estimates indicate that the deviations from an equilibrium path initiate significant adjustments in inflation dynamics, and that closer coordination between monetary and fiscal policies would improve the balance between economic growth and price stability.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/78.

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Length: 28
Date of creation: 27 Mar 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/78

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Related research

Keywords: Inflation; Libya; Monetary policy; Fiscal policy; Economic models; money supply; exchange rate pass-through; international sanctions; price inflation; inflation dynamics; inflationary pressures; aggregate demand; monetary phenomenon; inflation process; monetary fund; money growth; central bank; monetary economics; quantity theory of money; price stability; monetary aggregates; real money; money demand; rate of inflation; demand for money; financial stability; foreign exchange; monetary growth; money market; monetary indicators; monetary instruments; price level; monetary factors; low inflation; lower inflation; inflationary impact; macroeconomic stability; monetary liquidity; classical quantity theory; change in inflation; money balances; stock of money; liquidity management; inflation money; open market operations; monetary expansion; real variables; inflation equation;

References

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  11. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, American Economic Association, vol. 96(1), pages 54-81, March.
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  13. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
  14. Banerjee, Anindya, et al, 1986. "Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 48(3), pages 253-77, August.
  15. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  16. De Grauwe, Paul & Polan, Magdalena, 2001. "Is Inflation Always and Everywhere a Monetary Phenomenon?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2841, C.E.P.R. Discussion Papers.
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