## The Nonmonetary Determinants of Inflation: A Panel Data Study

_IMF Working Papers, March 1, 1998_

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## Bibliographic details
- Authors: Carlo Cottarelli
- Published: March 1, 1998
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451844016.001

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### Summary / Research Question
- Explains inflation performance in a sample of industrial and transition economies by analyzing:
  - policymakers’ incentives to inflate the economy, and
  - the perceived costs of disinflation.

### Key Findings
- Fiscal deficits have a significant effect on inflation, particularly (but not exclusively) in countries where the government securities market is not well developed.
- Other factors with a significant effect on inflation include:
  - relative price changes,
  - central bank independence,
  - the exchange rate regime, and
  - the degree of price liberalization.
- There is only limited evidence that other structural factors, such as those influencing the natural rate of unemployment, have a significant effect on inflation.

### Determinants Examined (conceptual list)
- Policymakers’ incentives to inflate
- Perceived costs of disinflation
- Fiscal deficits
- Development of the government securities market
- Relative price changes
- Central bank independence (central bank autonomy)
- Exchange rate arrangements / exchange rate regime
- Degree of price liberalization
- Structural factors related to the natural rate of unemployment
- Inflation expectations

### Policy Implications / Interpretations
- Strengthening government securities markets may mitigate the inflationary impact of fiscal deficits.
- Enhancing central bank independence can be associated with lower inflation outcomes.
- Exchange rate regime choices and the pace/degree of price liberalization materially influence inflation performance.
- Policies focused solely on structural factors affecting the natural rate of unemployment are less likely, based on this study, to have strong direct effects on inflation.

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## Content in this bundle

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-nonmonetary-determinants-of-inflation-a-panel-data-study-2517_