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The impact of political instability on inflation volatility: The case of the Middle East and North Africa region

Author

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  • Afnan Ghanayem
  • Gareth Downing
  • Murad Sawalha

Abstract

This study examines the impact of political instability on inflation volatility in the Middle East and North Africa (MENA) region. First, it analyzes the multidimensionality of political instability by adopting a factor analysis technique and finds five dimensions of political instability. Next, it adopts GARCH, EGARCH, and TGARCH volatility specifications to model country-specific monthly inflation data. Finally, it examines the impact of the five dimensions of political instability on GARCH conditional inflation volatility by employing the dynamic Generalized Method of Moments (GMM) panels. This paper reports both positive and negative effects of political instability on inflation volatility in the MENA region. Specifically, we show that the instability of the political regime dimension significantly increases inflation volatility, while the dimension of government instability significantly reduces inflation volatility. Our results hold for a set of robustness checks, including the MIDAS weighted conditional inflation volatility measures.

Suggested Citation

  • Afnan Ghanayem & Gareth Downing & Murad Sawalha, 2023. "The impact of political instability on inflation volatility: The case of the Middle East and North Africa region," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2213016-221, December.
    • Handle: RePEc:taf:oaefxx:v:11:y:2023:i:1:p:2213016
    DOI: 10.1080/23322039.2023.2213016
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