Inflation Sources Across Developed And Developing Countries; Panel Approach

Abstract

This paper investigates the sources of inflation across a sample of countries in the world. The data set covers around fifty nine countries using yearly data over the period from 1970 through 2007. The model is estimated using a panel model with a random effects specification. Results indicate that the main determinants of inflation for developing countries are different than those for developed countries. Our findings show that the main determinants of inflation for developed countries include government spending, money supply growth, world oil prices, interest rate, nominal effective exchange rate, and population. Whereas, sources of inflation for developing countries are estimated to include government spending, money supply growth, world oil prices, and the nominal effective exchange rate. Findings also report that there is no significant evidence for factors such as interest rate and population to affect the general price levels in developing countries.