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

Author/Editor:

Ari Aisen ; Francisco José Veiga

Publication Date:

March 1, 2005

Electronic Access:

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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:

English

Publication Date:

March 1, 2005

ISBN/ISSN:

9781451860689/1018-5941

Stock No:

WPIEA2005049

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

15

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