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

Author/Editor:

Ludvig Söderling ; Domenico Fanizza

Publication Date:

October 1, 2006

Electronic Access:

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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.

Series:

Working Paper No. 2006/216

Subject:

Demand for money Fiscal policy Inflation Monetary base Public debt

English

Publication Date:

October 1, 2006

ISBN/ISSN:

9781451864762/1018-5941

Stock No:

WPIEA2006216

Pages:

13

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