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Analyzing Determinants of Inflation When There Are Data Limitation; The Case of Sierra Leone

Author

Listed:
  • Kadima D. Kalonji
  • Jan Gottschalk
  • Ken Miyajima

Abstract

This paper examines the determinants of inflation in Sierra Leone using a structural vector autoregression (VAR) approach to help forecast inflation for operational purposes. Despite data limitations, the paper accurately models inflation in Sierra Leone. As economic theory predicts, domestic inflation is found to increase with higher oil prices, higher money supply, and nominal exchange rate depreciation. The paper then employs a historical decomposition approach to pinpoint the sources of a marked decline in inflation in 2006 and assesses its forecasting properties. Overall, the model serves as a useful addition to the toolkit for analyzing and forecasting inflation in countries with limited data availability.

Suggested Citation

  • Kadima D. Kalonji & Jan Gottschalk & Ken Miyajima, 2008. "Analyzing Determinants of Inflation When There Are Data Limitation; The Case of Sierra Leone," IMF Working Papers 08/271, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/271
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    References listed on IDEAS

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    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    4. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.
    5. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, vol. 70(2), pages 250-257, May.
    6. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
    7. Arto Kovanen, 2006. "Why Do Prices in Sierra Leone Change So Often? A Case Study Using Micro-level Price Data," IMF Working Papers 06/53, International Monetary Fund.
    8. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    9. Kallon, Kelfala M, 1994. "An Econometric Analysis of Inflation in Sierra Leone," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 3(2), pages 199-230, October.
    10. Kim, Soyoung, 1999. "Do monetary policy shocks matter in the G-7 countries? Using common identifying assumptions about monetary policy across countries," Journal of International Economics, Elsevier, vol. 48(2), pages 387-412, August.
    11. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    12. Louis Kuijs, 2002. "Monetary Policy Transmission Mechanisms and Inflation in Slovakia," IMF Working Papers 02/80, International Monetary Fund.
    13. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
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    Citations

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    Cited by:

    1. Carlos P. Barros & Luis A. Gil-Alana, 2013. "Inflation Forecasting in Angola: A Fractional Approach," African Development Review, African Development Bank, vol. 25(1), pages 91-104, March.
    2. Abdullah Almounsor, 2010. "Inflation Dynamics in Yemen; An Empirical Analysis," IMF Working Papers 10/144, International Monetary Fund.
    3. Tidiane Kinda, 2011. "Modeling Inflation in Chad," IMF Working Papers 11/57, International Monetary Fund.
    4. Patrick Enu & Emmanuel Dodzi K. Havi, 2014. "Macroeconomic Determinants of Inflation In Ghana: A Co integration Approach," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(7), pages 95-110, July.

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