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What Triggers Inflation in Emerging Market Economies?

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  • Ilker Domaç
  • Eray M. Yücel

Abstract

Emerging market economies (EMEs) have experienced a noticeable decline in inflation since the mid-1990s. Whether this stable price environment in EMEs is likely to endure and what kind of policies need to be followed to ensure price stability, however, still continue to be questions of considerable policy relevance. The authors investigate the factors associated with the start of 24 inflation episodes in 15 EMEs between 1980 and 2001. They use pooled probit analysis to estimate the contribution of the key factors to inflation starts. Their empirical results suggest that increases in the output gap, agricultural shocks, and expansionary fiscal policy raise the probability of inflation starts in EMEs. Their findings also indicate that a more democratic environment and an increase in capital flows relative to GDP reduce the probability of inflation starts.
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Suggested Citation

  • Ilker Domaç & Eray M. Yücel, 2005. "What Triggers Inflation in Emerging Market Economies?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(1), pages 141-164, April.
  • Handle: RePEc:spr:weltar:v:141:y:2005:i:1:p:141-164
    DOI: 10.1007/s10290-005-0019-7
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    Cited by:

    1. Akcay, Belgin & Yucel, Eray, 2014. "Unveiling the House Price Movements and Financial Development," MPRA Paper 59377, University Library of Munich, Germany, revised 19 Oct 2014.
    2. Ahmad, Ahmad Hassan & Aworinde, Olalekan B., 2019. "Are fiscal deficits inflationary in African countries? A new evidence from an asymmetric cointegration analysis," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    3. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar, 2015. "Causal nexus between economic growth, inflation, and stock market development: The case of OECD countries," Global Finance Journal, Elsevier, vol. 27(C), pages 98-111.
    4. Martin Feldkircher & Gabriele Tondl, 2020. "Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(3), pages 225-247, August.
    5. Ugur Ciplak & Eray M. Yucel, 2004. "Trade Protection Measures, Agricultural and Food Prices," Working Papers 0401, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    6. Pami Dua & Upasna Gaur, 2010. "Determination of inflation in an open economy Phillips curve framework: the case of developed and developing Asian countries," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 3(1), pages 33-51.
    7. Amr Hosny, 2013. "Inflation In Egypt: Internal Or External Driven?," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-15.
    8. Abel M. Agoba, 2021. "Minimising the inflationary impact of fiscal deficits in Africa: The role of monetary, financial and political institutions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 724-740, January.
    9. Maissa Elmrabet & Boulila Ghazi, 2018. "Causality deficit-inflation : wavelet transform," Working Papers hal-01941464, HAL.
    10. Lin, Hsin-Yi & Chu, Hao-Pang, 2013. "Are fiscal deficits inflationary?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 214-233.
    11. Granville, Brigitte & Mallick, Sushanta, 2010. "Monetary Policy in Russia: Identifying exchange rate shocks," Economic Modelling, Elsevier, vol. 27(1), pages 432-444, January.
    12. Nasir, Muhammad Ali & Huynh, Toan Luu Duc & Yarovaya, Larisa, 2020. "Inflation targeting & implications of oil shocks for inflation expectations in oil-importing and exporting economies: Evidence from three Nordic Kingdoms," International Review of Financial Analysis, Elsevier, vol. 72(C).
    13. Jalil, Abdul & Tariq, Rabbia & Bibi, Nazia, 2014. "Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach," Economic Modelling, Elsevier, vol. 37(C), pages 120-126.
    14. Clement Olalekan Olaniyi, 2020. "Application of Bootstrap Simulation and Asymmetric Causal Approach to Fiscal Deficit-Inflation Nexus," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 123-140, May.

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