Inflation Dynamics in Madagascar, 1971-2000
October 1, 2001
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Summary
The paper analyzes the dynamics of inflation in Madagascar in the period 1971-2000, applying cointegration analysis and error correction modeling. The empirical results, based on quarterly data, confirm that there exists a stable money demand relationship, as well as a purchasing power relationship in the long run. The former enters the short-run dynamics of inflation and money growth, while the latter affects the short-run dynamics of the exchange rate only. We also find that an appreciation has a direct negative impact on inflation and that inflation inertia is important. In addition, we conduct FIML estimation of the system and trace the impulse responses to various shocks.
Subject: Demand for money, Exchange rate adjustments, Exchange rates, Foreign exchange, Inflation, Monetary base, Money, Prices
Keywords: Africa, cointegration, Demand for money, error correction model, error correction term, exchange rate, Exchange rate adjustments, Exchange rates, growth equation, inflation, inflation equation, inflation inertia, Madagascar, Monetary base, money demand, money growth, nominal exchange rate, price equation, rate of return, WP
Pages:
27
Volume:
2001
DOI:
Issue:
168
Series:
Working Paper No. 2001/168
Stock No:
WPIEA1682001
ISBN:
9781451858266
ISSN:
1018-5941
