Economists generally accept the proposition that high and volatile inflation rates generate inefficiencies that reduce societys welfare. Furthermore, studies have shown that inflation is harmful to economic growth. However, determining the causes of the worldwide diversity of inflationary experiences is an important challenge not yet satisfactorily confronted by the profession. Based on a broad dataset covering over 100 countries for the period 1975-1997 and using dynamic and static panel data econometric techniques, this paper shows that a higher degree of political instability is associated with both higher inflation levels and volatility. Not only does this paper advance the political economy literature establishing a relationship between inflation moments and political instability, but it also has important policy implications regarding the optimal design of inflation stabilization programs and of the institutions favorable to price stability.
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Publisher Info
Paper provided by Faculty of economics, Department of Economics in its series Working Papers with number
200711.
Length: 22 pages Date of creation: Oct 2006 Date of revision:
Mar 2007 Publication status: Published in Journal of Money, Credit and Banking, Vol. 38 No, 5, August 2006, The Ohio State University Press. Serbian translation published in Panoeconomicus, March 2007, pages 5-27 Handle: RePEc:voj:wpaper:200711
Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
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