Main Determinants Of Inflation Research Articles

A new look at asymmetric effect of oil price changes on inflation: Evidence from Malaysia

The existing literature that examined the effect of oil price on domestic price inflation only focused on consumer price at an aggregate level. The studies that focused on producer and production levels, and based on disaggregated data are very lack. Besides, previous studies also mainly applied the linear regression approach in studying the effect of oil price. This study seeks to explore the mentioned issues by focusing on sectoral consumer (CPI), industrial (IPI), and producer (PPI) prices of Malaysia. The Markov-switching (MS) regression technique is applied. The models are innovated by incorporating the asymmetric effects of oil price changes. The results reveal different reactions of sectoral domestic price inflation to oil price changes. The oil price has asymmetric effects on domestic price inflation with higher impacts on industrial and producer prices than the consumer price. The effect is larger in sectors that have higher linkages with oil/ energy resources. These sectors are oil-intensive and are sensitive to oil price changes. Among these sectors are the CPI transportation sector, IPI manufacturing, and electrical sectors as well as PPI fuel, chemicals, and manufacturing sectors. However, oil is not the main factor causes to domestic inflation. The main determinants of inflation are real exchange rate, aggregate supply, and demand. Besides, the policy decisions are also influential on price stability. The sectors of CPI transportation, PPI animals & vegetable oils, and PPI fuel have a high tendency to increase prices and should be well-monitored.

Determinants of Inflation in Sub-Saharan Africa: A Systematic Review

Macroeconomic stability is the central aim of policymakers of most nations. Inflation is considered a crucial element of Macroeconomic stability. Empirical evidence confirmed the existence of a long-run relationship between inflation and other macroeconomic variables. The major objective of the study is to investigate the main determinants of inflation in sub-Saharan African countries. The study used a systematic review technique. Therefore in-depth literature review has been done on 11 studies undertaken in 9 sub-Saharan African countries. Accordingly, among the eight variables used for analysis, GDP, Broad money supply, Real exchange rate, and interest rate, is the main source of inflation. On the other hand import prices, Inflation expectations, public expenditure, and oil prices are found to determine inflation slightly. Keywords: Determinant, Inflation, Sub-Saharan Africa DOI: 10.7176/DCS/11-3-02 Publication date: March 31 st 2021

Determinantes de la inflación en el Ecuador en el período 2003 – 2008.

Se explican los principales determinantes de la inflación en el Ecuador en el período 2003 – 2008, mediante un modelo VARMA, donde todas las variables que se aplicarán en el programa informático EViews 10, son cuantitativas y de tipo de series temporales, expresadas en millones de dólares.

Inflation dynamics in a dollarised economy: The case of Zimbabwe

This paper explores the dynamics of inflation in the dollarised Zimbabwean economy using the autoregressive distributed lag (ARDL) model with monthly data from 2009:1 to 2012:12. The main determinants of inflation were found to be the US dollar/South African rand exchange rate, international oil prices, lagged Zimbabwean inflation rate and South African inflation rate. During the local currency era, inflation dynamics in Zimbabwe were explained by excess growth in money supply, changes in import and administered prices, unit labour costs and output (Chhibber, Cottani, Firuzabadi & Walton 1989). According to Makochekanwa (2007), hyperinflation during the same era was attributed to excess money supply growth, lagged inflation and political factors. Coorey, Clausen, Funke, Munoz & Ould-Abdallah (2007) affirmed these findings by identifying excess money supply growth as a source of high inflation in Zimbabwe during the local currency era. In essence, the findings of this study point to a shift in inflation dynamics in Zimbabwe. This shift in inflation dynamics means that policies, which were used to respond to both internal and external shocks that have an impact on price formation, might not be applicable in a dollarised economy.

ON THE DRIVERS OF INFLATION IN IRAQ

This study examines the main determinants of inflation in Iraq during the period from 1995 to 2017. In this context, this paper focuses on the major sources to explain inflation trend in Iraq. As econometrics technique, the autoregressive distributed lag (ARDL) cointegration framework is employed. The main results show that inflation has been caused by an admixture of factors including increase of money supply, and shortage of aggregate supply mirrored by growth of domestic product, which depends heavily on the performance of the oil sector and its price. The imported inflation seems to be another cause of inflation. However, one should not ignore the political instability and the sanction imposed on the country, as well as the invasion followed by the occupation of the country by the USA in 2003. Based on the results reached, the control of inflation in Iraq needs a combination of fiscal and monetary policies.

The Main Determinants of Inflation in South Africa: an Empirical Investigation

This study investigated the determinants of inflation in South Africa using quarterly data from 1970Q1 to 2015Q4. The study was motivated by recent trends in domestic inflation that has frequently been at the upper end of the target range of between 3% and 6%, and the need to guide inflation-related policy since 2008. These recent trends raised concerns regarding the effectiveness of the current monetary policy approach in responding to internal and external factors that are significant in determining domestic inflation. Using Error Correction Model (ECM) modelling techniques, empirical results revealed that inflation expectations, labour costs, government expenditure and import prices are positive determinants, while GDP and exchange rates are negative determinants of inflation. To achieve the macroeconomic policy objective of a stable and low inflation rate for South Africa, more emphasis should be placed on anchoring inflation expectations, which was found to be highly significant in determining inflation.

Contrôle De L’inflation En Regime De Change Fixe: Le Cas De La Communaute Economique Et Monetaire d’Afrique Centrale (CEMAC)

This paper focuses on the determinants of inflation under different policy rules and fixed exchange rate regime, the example of the CEMAC zone. The purpose of this paper is to check the behaviour of inflation in fixed exchange rate regime for a flexible targeting period and a period of strict targeting. The data used are mainly from the World Bank, in «the book of world development indicators» contained in the CD -ROM (WDI 2015). Working for the periods 1977-1994, 1995-2012 and 1977-2012, the analyses was done with a dynamic panel that has the distinction of being among the independent variables, the endogenous variable lagged one or more periods. The endogenous variable is the rate of inflation. Estimates made from the Arellano and Bond (1991) method, it is clear that during the period (1977- 1994) of flexible inflation targeting, money supply, trade balance and the exchange rate are the main determinants of inflation. During the period (1995-2012) of strategy of strict inflation targeting, the main determinants of inflation are the benefits of natural resources, the trade balance and the economic crisis. The determinants of inflation have opposing effects of a match type to another and it is the combination of these effects for each variable that shows the different effects of the determinants of inflation over the period. The exchange rate increased the rate of inflation over the first sub-period (1977-1994) and throughout the entire period (1977-2012). In times (1995-2012) of strict inflation targeting, these negative effects were mitigated at the expense of economic growth. Countries with fixed exchange rate regime should not adopt a strict policy of inflation targeting, but should alternate with the growth objective by facilitating financing for investments.

Inflation Dynamics in Sri Lanka: An Empirical Analysis

This paper examines the dynamics of inflation in Sri Lanka using the cointegration approach on quarterly time series data. Considering recent empirical studies in the context of inflation in emerging countries including Sri Lanka, an empirical model has been constructed with seven variables; namely inflation, economic growth, government expenditure, exchange rate, money supply, oil prices and interest rates. The main determinants of inflation in Sri Lanka are the economic growth, exchange rate, government expenditure, money supply, oil prices and interest rates in the long run. According to the estimated impulse response functions, both domestic shocks (money supply, interest rate and economic growth) and external shocks (exchange rate and oil prices) have an effect on inflation in the short run. These findings would be useful for policy makers in their effort in maintaining price stability in Sri Lanka on a sustainable basis.

Implicit asymmetric exchange rate peg under inflation targeting regimes: the case of Turkey

Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determinants of inflation under an inflation targeting regime, as a case study, this paper analyzes the Turkish experience with the inflation targeting regime between 2002 and 2008. There are two main findings of this paper. First, the evidence from a Vector Autoregressive (VAR) model suggests that the main determinants of inflation in Turkey during this period are supply side factors such as international commodity prices and the variation in exchange rate rather than demand side factors. Since the Turkish lira (TL) was considerably over-appreciated during this period, it is apparent that the Turkish Central Bank benefited from the appreciation of the TL in its fight against inflation during this period. Second, our findings suggest that the appreciation of the TL is related to the deliberate asymmetric policy stance of the Bank with respect to the exchange rate. Both the econometric analysis from a VAR model and descriptive statistics indicate that appreciation of the Turkish lira was tolerated during the period under investigation whereas depreciation was responded aggressively by the Bank. We call this policy stance under the inflation targeting regimes as implicit asymmetric exchange rate peg. The Turkish experience indicates that, as opposed to rhetoric of central banks in developing countries, inflation targeting developing countries may have an asymeyric stance toward exchange rates and favour appreciation of their currencies to hit their inflation targets. In this sense, IT seems to contribute to the ignorance of dangers regarding to over-appreciation of currencies in developing countries.

Determinants of Inflation in Vietnam: A VECM Approach

This paper aims to examine the main determinants of inflation in Vietnam during the period from 2002Q1 to 2013Q2. The cointegration theory and the Vector Error Correction Model (VECM) approach are used to examine the impact of domestic credit, interest rate, budget deficit, and crude oil prices on inflation in both long and short terms. The results show that while there are long-term relations among inflation and the others, such factors as oil prices, domestic credit, and interest rate, in the short run, have no impact on fluctuations of inflation. Particularly, the budget deficit itself actually has a short-run impact, but its level is fundamentally weak. The cause of the current inflation is mainly due to public's expectations of the inflation in the last period. Although the error correction, from the long-run relationship, has affected inflation in the short run, the coefficient is small and insignificant. In other words, it means that the speed of the adjustment is very low or near zero. This also implies that once the relationship among inflation, domestic credit, interest rate, budget deficit, and crude oil prices deviate from the long-term trend, it will take the economy a lot of time to return to the equilibrium state.

Oil windfall, public spending and price stability: modelling inflation in Chad†

This article examines the determinants of inflation in Chad using quarterly data from 1983:Q1 to 2009:Q3. The analysis is based on a single-equation model, completed by a Structural Vector Autoregression (SVAR) model to capture inflation persistence. The results show that the main determinants of inflation in Chad are rainfall, foreign prices, exchange rate movements and particularly public spending, which soared following the onset of oil production in 2003. The effects of rainfall shocks and changes in foreign prices on inflation persist during six quarters. Changes in public spending and the nominal exchange rate affect inflation during three and four quarters, respectively. †The views expressed herein are those of the author and should not be attributed to the IMF, its Executive Board, or its management.

The Sources of Recent Inflation in Vietnam: Evidence from a VAR with Sign Restrictions

This paper studies the sources of high and chronic inflation in Vietnam in recent years using the structural VAR method identified by sign restrictions. The novelty of the paper is that the sign restrictions are drawn from a New Keynesian small open economy DSGE model built and calibrated to the data of Vietnam. Variance decomposition results show that supply shocks and demand shocks seem to explain a large part of inflation over the whole sample period, while the contribution of monetary shocks is much smaller but not negligible. Historical decomposition results show that demand shocks and, to a lesser extent, monetary shocks seem to be the main determinants of inflation in the period 2004Q1-2008Q3, while supply shocks appear to be more important in the period 2008Q1-2010Q4.

Asimetrías en la transmisión de precios en el sector del tomate en España

This paper aims to investigate the non-linear adjustments between farm and retail prices in the tomato sector in Spain. The methodology used is based on the multivariate approach to specify and estimate a Threshold Autoregressive Model. The results indicate that, in the long run, price transmission is perfect. In the short-run, price adjustments between the farm and the retail levels are asymmetric. Retailers always benefit (in terms of increasing marketing margins) from positive and negative shocks affecting supply or demand conditions. Moreover, marketing margins have been found to be main determinants of inflation in the Spanish tomato sector.

The Main Determinants of Inflation in Sri Lanka: A VAR based Analysis

Staff Studies is the bi-annual (March and September) peer-reviewed journal of the Central Bank of Sri Lanka. The Journal aims at stimulating innovative research for the analysis of current macroeconomic issues and policy challenges faced by central banks while providing a forum to present recent theoretical and empirical research.

The nature of inflation in Malawi up to the early 2000s

This paper examines the possible sources of inflation in Malawi’s economy since 1970s. Using vector autoregressive models of order two in changes of the variables, impulse response functions as well as error variance decomposition analysis, this study has established that changes in money supply, exchange rates, past values of inflation, recessions and booms were the main determinants of inflation. Further it is found that there was a clear differential impact between booms and recessions on inflation such that the impact of recessions was more pronounced though it was less persistent. These results are in line with those obtained from Malawi’s regional partners such as Zambia, Mozambique, Tanzania, Kenya and South Africa in related studies, however, this study is unique because it takes an advanced step forward to show using fairly sophisticated analysis that booms and busts present differential challenges to the macroeconomy and indeed inflation. Policies aimed at controlling money supply, interest rates as well as exchange rates are desired, as changes in these variables do generate significant changes in inflation levels. The implication of the established asymmetric effects of booms and busts on inflation is that inflation modelling must treat booms and slumps differently if the true impact of real output on inflation is to be precisely established empirically. Key words: Inflation, recessions and economic booms, vector auto regressions, generalized impulse response.

Modeling Inflation in Chad

This paper examines the determinants of inflation in Chad using quarterly data from 1983:Q1 to 2009:Q3. The analysis is based on a single-equation model, completed by a structural vector auto regression model to capture inflation persistence. The results show that the main determinants of inflation in Chad are rainfall, foreign prices, exchange rate movements, and public spending. The effects of rainfall shocks and changes in foreign prices on inflation persist during six quarters. Changes in public spending and the nominal exchange rate affect inflation during three and four quarters, respectively.

The Main Determinants of Inflation in Nigeria

This paper analyzes the dominant factors influencing inflation in Nigeria. An error correction model of the inflation process is developed based on money market equilibrium conditions. The results of this analysis confirm the basic findings of earlier studies, namely, that monetary expansion, driven mainly by expansionary fiscal policies, explains to a large degree the inflationary process in Nigeria. Other important factors are the devaluation of the naira and agroclimatic conditions. It was found that concurrent fiscal and monetary policies had a major influence on the impact of the depreciation of the naira on inflation.

The Main Determinants of Inflation in Nigeria

This paper provides a selective review of the literature on the determinants of inflation in Nigeria, analyzes the dominant factors influencing inflation, presents the empirical results of a reduced-form elasticities model, and discusses the policy implications of the empirical results. The results of this analysis confirm the basic findings of earlier studies, namely that monetary expansion, driven mainly by expansionary fiscal policies, explains to a large degree the inflationary process in Nigeria. Other important factors are the devaluation of the naira and agroclimatic conditions. With respect to the depreciation of the naira, it was found that concurrent fiscal and monetary policies had a major influence on its impact on inflation. Given the considerable role of food commodities in the CPI, agroclimatic conditions (rainfall) were found to play a significant role in overall movements in prices and should be fully taken into consideration in any analysis of the inflationary process in Nigeria.