Understanding Inflation Inertia in Angola

21 Pages Posted: 19 May 2009

See all articles by Nir Klein

Nir Klein

Tel Aviv University - Eitan Berglas School of Economics

Alexander Kyei

International Monetary Fund (IMF)

Date Written: May 2009

Abstract

In recent years, the decline in inflation in Angola has stalled and further steps may be needed to attain the authorities' medium term goal of meeting the Southern African Development Community (SADC) convergence criteria of a low single digit inflation rate. A Vector Error Correction (VEC) model, which analyzes the factors that affect the inflationary process in Angola, suggests that the inflation path has been largely affected by exchange rate movements. This implies that greater exchange rate flexibility that facilitates a gradual appreciation would be instrumental to moderate price growth through reducing the price of imports and limiting liquidity injection by the National Bank of Angola (BNA). Additionally, the analysis shows that excess liquidity, which is measured by positive deviations of M2 from its equilibrium level, adds to demand pressures, and contributes to inflation with a lag. This underlines the importance of closely monitoring the growth of monetary aggregates as well as improving liquidity management.

Keywords: Inflation, Angola, Inflation rates, Monetary aggregates, Oil exports, Commodity price fluctuations, Exchange rates, Excess liquidity, Liquidity management, Economic models, Data analysis

Suggested Citation

Klein, Nir and Kyei, Alexander, Understanding Inflation Inertia in Angola (May 2009). IMF Working Paper No. 09/98, Available at SSRN: https://ssrn.com/abstract=1405589

Nir Klein (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

Alexander Kyei

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

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