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Sources of Inflation in Developing Countries

Prakash Loungani and Phillip Swagel

No 2001/198, IMF Working Papers from International Monetary Fund

Abstract: This paper develops stylized facts about the inflation process in developing countries, focusing particularly on the relationship between the exchange rate regime and the sources of inflation. Using annual data from 1964 to 1998 for 53 developing countries, we find that money growth and exchange rate changes-factors typically related to fiscal influences-are far more important in countries with floating exchange rate regimes than in those with fixed exchange rates. Instead, inertial factors dominate the inflation process in developing countries with fixed exchange rate regimes.

Keywords: WP; exchange rate; money growth; currency; Inflation; developing countries; exchange rate regimes; growth innovation; inflation movement; inflation innovation; inflation response; inflation experience; sources of inflation; Exchange rate arrangements; Exchange rates; Output gap; Conventional peg; South America; Africa; Asia and Pacific (search for similar items in EconPapers)
Pages: 29
Date: 2001-12-01
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Handle: RePEc:imf:imfwpa:2001/198