Inflation in Low-Income Countries

42 Pages Posted: 6 Aug 2019

See all articles by Jongrim Ha

Jongrim Ha

World Bank

Anna Ivanova

International Monetary Fund (IMF) - European Department

Peter J. Montiel

Williams College - Department of Economics

Peter Pedroni

Williams College

Date Written: July 9, 2019


This paper studies the effects of global and domestic inflation shocks on core price inflation in 105 countries between 1970 and 2016, by using a heterogeneous panel vector-autoregressive model. The methodology allows accounting for differences across groups of countries (advanced economies, emerging markets and developing economies, and low-income countries) and across groups with different country characteristics (such as foreign exchange and monetary policy regimes). The empirical results indicate that most of the variation in inflation among low-income countries over the past decades is accounted for by external shocks. More than half of the variation in core inflation rates among low-income countries is due to global core price shocks, compared with one-eighth in advanced economies. Global food and energy price shocks account for another 13 percent of core inflation variation in low-income countries -- half more than in advanced economies and one-fifth more than in emerging markets and developing economies. This points to challenges in anchoring domestic inflation expectations, which have been most evident among low -- income countries with floating exchange rates, especially in cases where central bank independence has been weak.

Keywords: Inflation, Financial Structures, Macroeconomic Management, Energy Demand, Energy and Mining, Energy and Environment, International Trade and Trade Rules

Suggested Citation

Ha, Jongrim and Ivanova, Anna and Montiel, Peter J. and Pedroni, Peter, Inflation in Low-Income Countries (July 9, 2019). World Bank Policy Research Working Paper No. 8934, Available at SSRN:

Jongrim Ha (Contact Author)

World Bank ( email )

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Anna Ivanova

International Monetary Fund (IMF) - European Department ( email )

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Peter J. Montiel

Williams College - Department of Economics ( email )

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Peter Pedroni

Williams College ( email )

Williamstown, MA 01267
United States

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