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Fiscal Determinants of Inflation: A Primer for the Middle East and North Africa

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  • Mr. Ludvig Söderling
  • Mr. Domenico Fanizza

Abstract

Many countries in the Middle East and North Africa (MENA) region have recently experienced surges in money growth that apparently have not generated significant inflationary pressures. Moreover, several MENA countries have followed monetary policy rules that according to standard monetary theory should have produced macroeconomic instability and possibly hyperinflation. We argue that the Fiscal Theory of the Price Level could usefully provide insights on these developments. Our main conclusion is that a sound fiscal position constitutes a necessary condition for macroeconomic stability whereas "sound" monetary policy is neither sufficient nor necessary. Hence, fiscal policy and public debt deserve particular attention for maintaining macroeconomic stability, by and large consistent with Fund policy advice to MENA countries.

Suggested Citation

  • Mr. Ludvig Söderling & Mr. Domenico Fanizza, 2006. "Fiscal Determinants of Inflation: A Primer for the Middle East and North Africa," IMF Working Papers 2006/216, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/216
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    References listed on IDEAS

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    1. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
    2. Lawrence J. Christiano & Terry J. Fitzgerald, 2000. "Understanding the fiscal theory of the price level," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-38.
    3. International Monetary Fund, 2004. "Financial Sector Development in the Middle East and North Africa," IMF Working Papers 2004/201, International Monetary Fund.
    4. International Monetary Fund, 2002. "Tunisia’s Experience with Real Exchange Rate Targeting and the Transition to a Flexible Exchange Rate Regime," IMF Working Papers 2002/190, International Monetary Fund.
    5. Daniel, Betty C., 2001. "The fiscal theory of the price level in an open economy," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 293-308, October.
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    Cited by:

    1. El Baz, Osama, 2014. "The Determinants of Inflation in Egypt: An Empirical Study (1991-2012)," MPRA Paper 56978, University Library of Munich, Germany.
    2. Djelassi, Mouldi & Essid, Lobna, 2012. "Le niveau des prix en Tunisie est-il déterminé par la politique budgétaire?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 88(2), pages 231-256, Juin.
    3. Menji, Sisay, 2008. "Determinants of Recent Inflation in Ethiopia," MPRA Paper 29668, University Library of Munich, Germany.

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    Keywords

    WP; monetary policy; price level;
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