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Hitchhiker’s Guide to Inflation in Libya

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  • Serhan Cevik
  • Katerina Teksoz

Abstract

This paper presents an empirical investigation of inflation dynamics in Libya over the period 1964–2010, using cointegration and error correction models. While inflation inertia is found to be a key determinant of consumer price inflation, the econometric results indicate that government spending, money supply growth, global inflation, and exchange rate pass-through play central roles in the inflation process. These findings are broadly consistent with the experience of other countries that are natural resource dependent. We also find evidence that the imposition and subsequent removal of international sanctions on Libya had a noteworthy impact on consumer price inflation. Collectively, our estimates indicate that the deviations from an equilibrium path initiate significant adjustments in inflation dynamics, and that closer coordination between monetary and fiscal policies would improve the balance between economic growth and price stability.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/78.

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Length: 28
Date of creation: 27 Mar 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/78
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Keywords: Exchange rate pass-through; Economic models; Economic integration; Central banks and their policies; Monetary policy; Money supply; Libya; Libyan Arab Jamahiriya; Inflation; Fiscal policy; international sanctions; price inflation; inflation dynamics; General;

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  1. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
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