Understanding Inflation in Malawi: A Quantitative Investigation

March 9, 2017

Preview Citation

Format: Chicago

Dong Frank Wu. Understanding Inflation in Malawi: A Quantitative Investigation, (USA: International Monetary Fund, 2017) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper focuses on the role of the pass-through of the exchange rate and policydeterminants in driving inflation. Using linear and nonlinear frameworks, the paper finds: (i) after the switch to a floating exchange rate regime in 2012, nonfood prices not only directly influence headline inflation, but also have an significant impact on food inflation via second round effects; (ii) the pass-through of the exchange rate to headline inflation has jumped from zero to 11 percent under the floating regime, after controlling for other factors; (iii) the improved significance of T-bill rates in shaping inflation flags its importance in Malawi’s monetary framework although the monetary transmission mechanism needs further strengthening; (iv) the increased impact of broad money underscores the necessity for fiscal discipline and central bank independence.

Subject: Exchange rate arrangements, Exchange rates, Floating exchange rates, Foreign exchange, Inflation, Monetary base, Money, Prices

Keywords: Exchange Rate, Exchange rate arrangements, Exchange rate expectation, Exchange rates, Floating exchange rates, Food inflation, Global, Headline inflation, Inflation, Inflation dynamics, Inflation expectation, Inflation fluctuation, Inflation volatility, Monetary base, Pass-through, Regime Switch, T-bill rate, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/048
Stock No:

WPIEA2017048
ISBN:

9781475585988
ISSN:

1018-5941

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