Political instability and inflation volatility

• Author(s): Aisen, Ari ; Veiga, Francisco José
• Date: 2008
• Persistent ID: http://hdl.handle.net/1822/7866
• Origin: RepositóriUM - Universidade do Minho
• Subject(s): Inflation; Volatility; Political instability; Institutions
• Document Type: Article
• Language: English

Description

The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. The purpose of this paper is to empirically analyze the effects of political instability, social polarization and the quality of institutions on inflation volatility over time and across countries. Using the system-GMM estimator for linear dynamic panel data models on a sample covering 160 countries, analyzed in the period from 1960 to 1999, this paper finds that higher degrees of political instability and social polarization, less democracy, and lower de facto central bank independence are associated with more volatile inflation rates. Furthermore, political instability has greater effects on inflation volatility in developing countries with lower degrees of central bank independence and economic freedom.