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Does Political Instability Lead to Higher Inflation? A Panel Data Analysis

Author/Editor: Aisen, Ari | Veiga, Francisco José
Authorized for Distribution: March 1, 2005
Electronic Access: Free Full Text (PDF file size is 396KB)
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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: Economists generally accept the proposition that high inflation rates generate inefficiencies that reduce society's welfare and economic growth. However, determining the causes of the worldwide diversity of inflationary experiences is an important challenge not yet satisfactorily confronted by the profession. Based on a dataset covering around 100 countries for the period 1960-99 and using modern panel data econometric techniques to control for endogeneity, this paper shows that a higher degree of political instability is associated with higher inflation. The paper also draws relevant policy implications for the optimal design of inflation-stabilization programs and of the institutions favorable to price stability.
 
Series: Working Paper No. 05/49
Subject(s): Economic conditions | Inflation | Economic models
Author's keyword(s): Inflation | volatility | political instability | institutions
 
English  
    Published:   March 1, 2005        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2005049   Pages:   15
    Price:   US$15.00
       
     
Please address any questions about this title to publications@imf.org.