Does Political Instability Lead to Higher Inflation? A Panel Data Analysis
International Monetary Fund (IMF) - Asia and Pacific Department; Central Bank of Chile
Francisco José Veiga
Universidade do Minho and NIPE
IMF Working Paper No. 05/49
Economists generally accept the proposition that high inflation rates generate inefficiencies that reduce society`s welfare and economic growth. However, determining the causes of the worldwide diversity of inflationary experiences is an important challenge not yet satisfactorily confronted by the profession. Based on a dataset covering around 100 countries for the period 1960-99 and using modern panel data econometric techniques to control for endogeneity, this paper shows that a higher degree of political instability is associated with higher inflation. The paper also draws relevant policy implications for the optimal design of inflation-stabilization programs and of the institutions favorable to price stability.
Number of Pages in PDF File: 16
Keywords: Inflation, volatility, political instability, institutions
JEL Classification: E31, E63working papers series
Date posted: January 11, 2006
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