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Inflation and Conflict in Iraq: The Economics of Shortages Revisited

Author

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  • Udo Kock
  • Mr. David A. Grigorian

Abstract

Containing inflation has turned out to be one of the most challenging aspects of economic management in Iraq. This paper posits that conventional as well as unconventional factors explain inflation dynamics in the recent past. We build a theoretical model based on the insights into the workings of socialist economies under supply shortages provided by Shleifer and Vishny (1992) to help explain price dynamics. In the model, strategic behavior of the fuel distribution monopolist results in fuel shortages, with implications for fuel and non-fuel inflation. A number of step-wise adjustments of administered prices for fuel products since December 2005 offer an interesting experiment to help study this behavior. Our findings show that inflation may have been influenced by shortages in fuel and non-fuel commodity supplies, which themselves are driven by violence and rent-seeking.

Suggested Citation

  • Udo Kock & Mr. David A. Grigorian, 2010. "Inflation and Conflict in Iraq: The Economics of Shortages Revisited," IMF Working Papers 2010/159, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/159
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    Cited by:

    1. Frank R. Gunter, 2013. "The Political Economy of Iraq," Books, Edward Elgar Publishing, number 14293, March.

    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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