Inflation Dynamics in Madagascar, 1971-2000

Emilio Sacerdoti and Yuan Xiao

No 2001/168, IMF Working Papers from International Monetary Fund

Abstract: The paper analyzes the dynamics of inflation in Madagascar in the period 1971-2000, applying cointegration analysis and error correction modeling. The empirical results, based on quarterly data, confirm that there exists a stable money demand relationship, as well as a purchasing power relationship in the long run. The former enters the short-run dynamics of inflation and money growth, while the latter affects the short-run dynamics of the exchange rate only. We also find that an appreciation has a direct negative impact on inflation and that inflation inertia is important. In addition, we conduct FIML estimation of the system and trace the impulse responses to various shocks.

Keywords: WP; nominal exchange rate; rate of return; Madagascar; inflation; money demand; exchange rate; cointegration; error correction model; money growth; inflation inertia; inflation equation; price equation; error correction term; growth equation; Exchange rates; Exchange rate adjustments; Demand for money; Monetary base; Africa (search for similar items in EconPapers)
Pages: 27
Date: 2001-10-01
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Citations: View citations in EconPapers (7)

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