The Determinants of Inflation in Emerging Markets and Developing Countries: A Literature Review

Authors : Dila ASFUROĞLU

Pages : 483-504

Doi:10.18037/ausbd.959251

View : 22 | Download : 17

Publication Date : 2021-06-29

Article Type : Review Paper

Abstract :A vast literature exists on the determinants of inflation in developed countries whereas the one in emerging markets and developing countries has gained attention at the beginning of 1990s. In this respect, the current paper overviews the empirical studies in order to provide underlying knowledge and common facts on this topic that are valuable for further research and policymakers. The patterns emerge from the results of the existing literature can be summarized as follows. First, inflation is mainly a monetary phenomenon either due to direct or indirect drivers in these countries. However, the significance of the effects from the monetary aggregates are dependent on the countries and periods under study. Secondly, inflation persistence is a major determinant in explaining inflation, suggesting a backward-looking behavior in inflation dynamics for these countries. Lastly, the importance of domestic determinants in understanding inflation has shifted towards external ones implying a greater role for global determinants in the last two decades.
Keywords : Inflation, Money Growth Rate, Interest Rate, Exchange Rate, Fiscal Deficit, Global Food Prices, Oil Prices