Determinants of Inflation in Palestine

Abstract

This study aimed at identifing the most important determinants and economic factors affecting inflation rates in the Palestine during the period (2000-2014), in order to help in reducing its effects on the Palestinian economy. The descriptive and analytical approach was used, by selecting a set of variables that were expected to have an impact on the inflation rates in the Palestinian economy, as these factors were such as economic growth rate, interest rate, exchange rate, unemployment rate, money supply, wages, inflation rate in Israel, and the global inflation rate. Two statistical models were developed for West Bank and Gaza Strip separately, based on quarter time series data for determinants of inflation in the Palestinian economy for the period from 2000-2014. The results showed the significatnt impact of: (the exchange rate, the Israeli inflation rate, the economic growth rate) on the inflation rate in the West Bank. In addition, it showed the significant effect of: (global inflation rate, unemployment rate, the economic growth rate) on the inflation rate in Gaza Strip. The other variables: credit facility, wage rate and interest rate were statistically insignificant. In light of this, the study recommended the necessity of issuing a national currency to reduce the losses of the Palestinian economy due to the absence of the national currency, as well as the pressure of imports and trying to find local alternatives by supporting the national product, as well as the need to review trade and economic policies between the Palestinian Authority and Israel to serve the development of the Palestinian economy.