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Inflation Dynamics in Yemen; An Empirical Analysis

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  • Abdullah Almounsor

Abstract

Yemen has had a high and volatile rate of inflation in recent years. This paper studies the underlying determinants of inflation dynamics in Yemen using three different approaches: (i) a single equation model, (ii) a Structural Vector Autoregression Model, and (iii) a Vector Error Correction Model. The outcomes suggest that inflation dynamics in Yemen are driven by international price shocks, exchange rate depreciation, domestic demand shocks, and monetary innovations. The impact of international prices and exchange rate depreciation indicate a significant pass-through of import prices. In the short run, external shocks of international prices and the exchange rate account for most variations in inflation, but domestic shocks to money supply and domestic demand explain larger variations in the medium term.

Suggested Citation

  • Abdullah Almounsor, 2010. "Inflation Dynamics in Yemen; An Empirical Analysis," IMF Working Papers 10/144, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/144
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    References listed on IDEAS

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    1. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.
    2. 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.
    3. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
    4. Oral Williams & Olumuyiwa S Adedeji, 2004. "Inflation Dynamics in the Dominican Republic," IMF Working Papers 04/29, International Monetary Fund.
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    Cited by:

    1. Shahzad Ahmad & Farooq Pasha, 2015. "A Pragmatic Model for Monetary Policy Analysis I: The Case of Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 11, pages 1-42.

    More about this item

    Keywords

    Domestic demand; Inflation; Yemen; pass-through; and money supply; money supply; inflation dynamics; monetary fund; inflation response;

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