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

17 Pages Posted: 31 Oct 2006

See all articles by Domenico Fanizza

Domenico Fanizza

International Monetary Fund (IMF) - Middle East and Central Asia Department

Ludvig Soderling

International Monetary Fund (IMF) - African Department

Date Written: October 2006

Abstract

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.

Keywords: Fiscal theory of the price level, Algeria, Egypt, Lebanon, Morocco, Tunisia

JEL Classification: E52, H63

Suggested Citation

Fanizza, Domenico and Soderling, Ludvig, Fiscal Determinants of Inflation: A Primer for the Middle East and North Africa (October 2006). IMF Working Paper No. 06/216, Available at SSRN: https://ssrn.com/abstract=941278

Domenico Fanizza (Contact Author)

International Monetary Fund (IMF) - Middle East and Central Asia Department ( email )

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

Ludvig Soderling

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

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