Sources of Inflation in Developing Countries

30 Pages Posted: 6 Feb 2006

See all articles by Prakash Loungani

Prakash Loungani

International Monetary Fund (IMF)

Phillip Swagel

Northwestern University - Department of Economics; International Monetary Fund (IMF)

Date Written: December 2001

Abstract

This paper develops stylized facts about the inflation process in developing countries, focusing particularly on the relationship between the exchange rate regime and the sources of inflation. Using annual data from 1964 to 1998 for 53 developing countries, we find that money growth and exchange rate changes - factors typically related to fiscal influences - are far more important in countries with floating exchange rate regimes than in those with fixed exchange rates. Instead, inertial factors dominate the inflation process in developing countries with fixed exchange rate regimes.

Keywords: Inflation, developing countries, exchange rate regimes

JEL Classification: E31, E42

Suggested Citation

Loungani, Prakash and Swagel, Phillip, Sources of Inflation in Developing Countries (December 2001). IMF Working Paper No. 01/198, Available at SSRN: https://ssrn.com/abstract=880326

Prakash Loungani (Contact Author)

International Monetary Fund (IMF) ( email )

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Phillip Swagel

Northwestern University - Department of Economics ( email )

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