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

October 1, 2006

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Ludvig Söderling, and Domenico Fanizza. Fiscal Determinants of Inflation: A Primer for the Middle East and North Africa, (USA: International Monetary Fund, 2006) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Demand for money, Fiscal policy, Inflation, Monetary base, Public debt

Keywords: Monetary policy, Price level, WP

Publication Details

Pages:

13
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/216
Stock No:

WPIEA2006216
ISBN:

9781451864762
ISSN:

1018-5941

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