Dynamics of inflationary processes in Malawi
AbstractDYNAMICS OF INFLATIONARY PROCESSES IN MALAWI: AN ECONOMETRIC ANALYSIS* Kisu Simwaka Research & Statistics Department Reserve Bank of Malawi The paper investigates the sources of inflationary pressures in Malawi and suggests ways of mitigating such pressures. In the first part of the study, we test for unit root test to determine the order of integration of the variables. A model of inflation is estimated as a co-integrating vector that spans nominal exchange rate and domestic output. In the second stage, a model of inflation is estimated with first differences of the non-stationary variables, a level variable and the co-integrating vector. Results indicate that inflation in Malawi is a result of both real and monetary shocks to the economy. It is further observed that current slumps in production generate inflationary pressures. This is due to the fact that food, a perishable product, exerts an immediate impact on inflation. Measures to control inflation must therefore emphasize enhancing production and supply, especially food. It is also imperative that efforts be made to improve distribution and road networks to reduce costs. It is worthy to note that although a lot of efforts have been made to curb domestic credit expansion, capital inflows are not usually taken into account and yet they constitute a major source of liquidity injection. Without proper measures including sterilization, the problem will continue to plague the nation. Monetary expansion will need to be controlled through more disciplined financial management to counteract these externally generated liquidity injections. It must also be noted that exchange rate adjustments fuel cost-push inflation. Thus the inflationary problem in Malawi is a multifaceted issue with many causes. Inflationary control should aim at policies directed at both real and monetary factors. Keywords : Inflation; Co-integration, Vector Autoregression *The findings, interpretation and conclusions expressed in this paper are entirely those of the author. They don’t necessarily represent the views of the Reserve Bank of Malawi.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0407016.
Date of creation: 16 Jul 2004
Date of revision:
Note: Type of Document - txt
Contact details of provider:
Web page: http://22.214.171.124
Inflation; Co-integration; Vector Autoregression;
Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-07-18 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Argy, Victor, 1970. "Structural Inflation in Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 22(1), pages 73-85, March.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.