Analyzing Determinants of Inflation When There Are Data Limitation: The Case of Sierra Leone

By Kadima D. Kalonji, Jan Gottschalk, Ken Miyajima

December 1, 2008

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Kadima D. Kalonji, Jan Gottschalk, and Ken Miyajima. Analyzing Determinants of Inflation When There Are Data Limitation: The Case of Sierra Leone, (USA: International Monetary Fund, 2008) accessed September 19, 2024

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

This paper examines the determinants of inflation in Sierra Leone using a structural vector autoregression (VAR) approach to help forecast inflation for operational purposes. Despite data limitations, the paper accurately models inflation in Sierra Leone. As economic theory predicts, domestic inflation is found to increase with higher oil prices, higher money supply, and nominal exchange rate depreciation. The paper then employs a historical decomposition approach to pinpoint the sources of a marked decline in inflation in 2006 and assesses its forecasting properties. Overall, the model serves as a useful addition to the toolkit for analyzing and forecasting inflation in countries with limited data availability.

Subject: Exchange rates, Inflation, Monetary base, Oil prices, Real exchange rates

Keywords: Central bank, Price level, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/271
Stock No:

WPIEA2008271
ISBN:

9781451871296
ISSN:

1018-5941

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