Factors affecting the inflation rate in selected developing countries with the TVP-VAR approach

Subject Areas : Computational economics

Marjan Mohammad Esmaeil ¹ , Reza Maaboudi ² , Mohammad Khorsand ³

1 - PhD student in economics, Aliguderz branch, Islamic Azad University, Aliguderz, Iran.
2 - Assistant Professor, Department of Economics, Faculty of Humanities, Grand Ayatollah Azami University of Borujerdi, Borujerd, Iran.
3 - Assistant Professor, Department of Economics, Aligudarz Branch, Islamic Azad University, Aligudarz, Iran.

Received: 2022-08-12 Accepted : 2022-11-29 Published : 2022-11-22

Keywords: , , Exchange rate shock, , inflation, , panel structural vector autoregression, , structural vector autoregression with time-varying parameters,

Abstract :

Inflation has been considered as one of the important economic indicators and one of the most important goals of governments is to control it. Inflation has significant economic consequences in the economy. Therefore, investigating factors affecting inflation is of particular importance. Among them is the shock of the exchange rate. so, this article examines the effect of exchange rate shock along with some explanatory variables on inflation in 47 developing countries by using panel structural vector autoregression model (Panel-SVAR) and vector autoregression with time-varying parameters (Panel-TVPVAR). It has been paid for the years 1990 to 2020. The criterion for selecting countries was the level of development and access to their information. In this research, in the first place, tests of unit root, co-accumulation and cross-sectional dependence have been performed. Also, the results indicate that in this period, one of the factors affecting inflation is the exchange rate changes in the countries. So that positive exchange rate shocks have a negative effect and negative exchange rate shocks have a positive effect on inflation. The results show that the increase in production and the degree of openness of the economy causes a decrease in inflation, as well as an increase in the size of the government and money supply, which causes an increase in inflation in selected developing countries. the effect of the mentioned variables on the inflation rate has been different in terms of size over time, but it has been constant in terms of the direction of the effect.