Modeling inflation dynamics in a conflict economy

Ibrahim Onour

MPRA Paper from University Library of Munich, Germany

Abstract: Research Problem: The primary purpose of the paper is to set up a macroeconomic model that depict domestic inflation dynamics in a conflict economy impeded by parallel market for foreign exchange and internal political conflict. Research methodology: To investigate domestic inflation sensitivity to macro variables time-varying coefficient estimation approach employed on monthly data from Sudan during the period from January 2008 to December2013. Results: While domestic money growth (government spending) is the main driver of domestic inflation,the increasing role of parallel market for foreign exchange and imported inflation on domestic inflation reveal increasing sensitivity of the economy to external shocks. Also indicated that our model based estimates of domestic inflation rate is about 22% above the officially announced inflation rate. Recommendations: To control domestic inflation it is essential to control growth in domestic money creation and adopt more flexible official foreign exchange rate that enables inflation trageting policy.

Keywords: Inflation; parallel market; money growth (search for similar items in EconPapers)
JEL-codes: E3 E30 E31 E4 E44 (search for similar items in EconPapers)
Date: 2015-03-07
New Economics Papers: this item is included in nep-ara, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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