Understanding Inflation in Malawi : A Quantitative Investigation

Author/Editor:

Dong Frank Wu

Publication Date:

March 9, 2017

Electronic Access:

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Summary:

This paper focuses on the role of the pass-through of the exchange rate and policydeterminants in driving inflation. Using linear and nonlinear frameworks, the paper finds: (i) after the switch to a floating exchange rate regime in 2012, nonfood prices not only directly influence headline inflation, but also have an significant impact on food inflation via second round effects; (ii) the pass-through of the exchange rate to headline inflation has jumped from zero to 11 percent under the floating regime, after controlling for other factors; (iii) the improved significance of T-bill rates in shaping inflation flags its importance in Malawi’s monetary framework although the monetary transmission mechanism needs further strengthening; (iv) the increased impact of broad money underscores the necessity for fiscal discipline and central bank independence.

Series:

Working Paper No. 17/48

Subject:

English

Publication Date:

March 9, 2017

ISBN/ISSN:

9781475585988/1018-5941

Stock No:

WPIEA2017048

Format:

Paper

Pages:

30

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