IMF Working Papers

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

By Ari Aisen, Francisco José Veiga

March 1, 2005

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Format: Chicago

Ari Aisen, and Francisco José Veiga. "Does Political Instability Lead to Higher Inflation? A Panel Data Analysis", IMF Working Papers 2005, 049 (2005), accessed May 13, 2025, https://doi.org/10.5089/9781451860689.001

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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.

Subject: Agricultural sector, Estimation techniques, Inflation, Oil prices, Treasury bills and bonds

Keywords: Country, Government, Government crisis, WP

Publication Details

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