Determinants of Inflation in Nepal: An Empirical Assessment

Shoora B. Paudyal Ph.D. ()
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Shoora B. Paudyal Ph.D.: Tribhuvan University, Kathmandu

NRB Economic Review, 2014, vol. 26, issue 2, 61-82

Abstract: This paper examines short term and long term effects of the macroeconomic variables on the inflation in Nepal during 1975-2011. The variables considered are budget deficits, Indian prices, broad money supply, exchange rate and real GDP. The regression results from Wickens-Breusch Single Equation Error Correction model suggest that all variables considered are significant in long run implying that these variables are the determinants of inflation in Nepal. However, only budget deficit, money supply and Indian prices cause inflation in the short run. The results are consistent with monetarists’ hypothesis of money matters and inflationary gap theory of Keynesian as well as supply constraints approach to inflation.

Keywords: Inflation; Budget Deficits; Single Equation ECM; Imported Prices; Consumer Price Index; M2; GDP (search for similar items in EconPapers)
JEL-codes: C22 E31 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:nrb:journl:v:26:y:2014:i:2:p:61

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