Does Political Instability Lead to Higher Inflation? A Panel Data Analysis
IMF Working Papers, March 1, 2005
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- Does Political Instability Lead to Higher Inflation? A Panel Data Analysis
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Bibliographic details
- Authors: Ari Aisen, Francisco José Veiga
- Published: March 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451860689.001
Summary
- Economists generally accept the proposition that high inflation rates generate inefficiencies that reduce society's welfare and economic growth.
- Determining the causes of the worldwide diversity of inflationary experiences remains an important challenge.
- 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.
Key Findings
- A higher degree of political instability is associated with higher inflation (finding derived from panel data analysis covering around 100 countries, 1960-99).
- The study uses modern panel data econometric techniques to control for endogeneity.
Data and Methods
- Dataset coverage: around 100 countries.
- Time period: 1960-99.
- Methodology: modern panel data econometric techniques with controls for endogeneity.
Policy Implications
- The paper draws relevant policy implications for:
- the optimal design of inflation-stabilization programs, and
- the design of institutions favorable to price stability.