Understanding Inflation Inertia in Angola

 
Author/Editor: Klein, Nir ; Kyei, Alexander
 
Publication Date: May 01, 2009
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: In recent years, the decline in inflation in Angola has stalled and further steps may be needed to attain the authorities' medium term goal of meeting the Southern African Development Community (SADC) convergence criteria of a low single digit inflation rate. A Vector Error Correction (VEC) model, which analyzes the factors that affect the inflationary process in Angola, suggests that the inflation path has been largely affected by exchange rate movements. This implies that greater exchange rate flexibility that facilitates a gradual appreciation would be instrumental to moderate price growth through reducing the price of imports and limiting liquidity injection by the National Bank of Angola (BNA). Additionally, the analysis shows that excess liquidity, which is measured by positive deviations of M2 from its equilibrium level, adds to demand pressures, and contributes to inflation with a lag. This underlines the importance of closely monitoring the growth of monetary aggregates as well as improving liquidity management.
 
Series: Working Paper No. 09/98
Subject(s): Inflation | Angola | Inflation rates | Monetary aggregates | Oil exports | Commodity price fluctuations | Exchange rates | Excess liquidity | Liquidity management | Economic models | Data analysis

Author's Keyword(s): Inflation | exchange rate | monetary policy | vector error correction.
 
English
Publication Date: May 01, 2009
Format: Paper
Stock No: WPIEA2009098 Pages: 19
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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