Inflation and Conflict in Iraq: The Economics of Shortages Revisited

25 Pages Posted: 19 Jul 2010

See all articles by David Grigorian

David Grigorian

International Monetary Fund (IMF)

Udo Kock

International Monetary Fund (IMF)

Date Written: July 2010

Abstract

Containing inflation has turned out to be one of the most challenging aspects of economic management in Iraq. This paper posits that conventional as well as unconventional factors explain inflation dynamics in the recent past. We build a theoretical model based on the insights into the workings of socialist economies under supply shortages provided by Shleifer and Vishny (1992) to help explain price dynamics. In the model, strategic behavior of the fuel distribution monopolist results in fuel shortages, with implications for fuel and non-fuel inflation. A number of step-wise adjustments of administered prices for fuel products since December 2005 offer an interesting experiment to help study this behavior. Our findings show that inflation may have been influenced by shortages in fuel and non-fuel commodity supplies, which themselves are driven by violence and rent-seeking.

Suggested Citation

Grigorian, David A. and Kock, Udo, Inflation and Conflict in Iraq: The Economics of Shortages Revisited (July 2010). IMF Working Papers, Vol. , pp. 1-24, 2010. Available at SSRN: https://ssrn.com/abstract=1641010

David A. Grigorian (Contact Author)

International Monetary Fund (IMF) ( email )

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

Udo Kock

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6299 (Phone)

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