Analyzing Determinants of Inflation When There are Data Limitation: The Case of Sierra Leone

42 Pages Posted: 18 Dec 2008

See all articles by Jan Gottschalk

Jan Gottschalk

International Monetary Fund (IMF) - Policy Development and Review Department

Kadima D. Kalonji

International Monetary Fund (IMF)

Date Written: December 2008

Abstract

This paper examines the determinants of inflation in Sierra Leone using a structural vector autoregression (VAR) approach to help forecast inflation for operational purposes. Despite data limitations, the paper accurately models inflation in Sierra Leone. As economic theory predicts, domestic inflation is found to increase with higher oil prices, higher money supply, and nominal exchange rate depreciation. The paper then employs a historical decomposition approach to pinpoint the sources of a marked decline in inflation in 2006 and assesses its forecasting properties. Overall, the model serves as a useful addition to the toolkit for analyzing and forecasting inflation in countries with limited data availability.

Keywords: Inflation, Sierra Leone, Data analysis, Economic forecasting, Oil prices, Money supply, Exchange rate depreciation, Forecasting models

Suggested Citation

Gottschalk, Jan and Kalonji, Kadima D., Analyzing Determinants of Inflation When There are Data Limitation: The Case of Sierra Leone (December 2008). IMF Working Papers, Vol. , pp. 1-40, 2008. Available at SSRN: https://ssrn.com/abstract=1316739

Jan Gottschalk (Contact Author)

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Kadima D. Kalonji

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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