Title: Hitchhiker's guide to inflation in Libya

Authors: Serhan Cevik; Katerina Teksoz

Addresses: International Monetary Fund, 700 19th Street, N.W., Washington, D.C., 20431, USA ' Columbia University, 405 Low Library, MC 4335, New York, USA

Abstract: This paper presents an empirical investigation of inflation dynamics in Libya over the period 1964-2012, using cointegration and error correction models. While inflation inertia is found to be a key determinant of consumer price inflation, the results indicate that government spending, money supply growth, global inflation, and exchange rate pass-through play central roles in the inflation process. These findings are broadly consistent with the experience of other countries that are natural resource dependent. We also find evidence that the imposition and subsequent removal of international sanctions on Libya had a significant impact on consumer price inflation. Collectively, our econometric estimates indicate that the deviations from an equilibrium path initiate significant adjustments in inflation dynamics, and that closer coordination between monetary and fiscal policies would improve the balance between economic growth and price stability.

Keywords: inflation inertia; consumer price inflation; government spending; global inflation; money supply; exchange rate pass-through; international sanctions; Libya; econometrics; inflation dynamics; economic growth; price stability.

DOI: 10.1504/IJEPEE.2014.059887

International Journal of Economic Policy in Emerging Economies, 2014 Vol.7 No.1, pp.1 - 21

Available online: 18 Mar 2014 *

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