Date of Award

5-1-2012

Degree Name

Master of Arts

Department

Economics

First Advisor

Morshed, Mahbub

Abstract

This paper examines the main determinants of inflation in Madagascar during the period 1984-2011, using cointegration approach. The empirical results highlight the existence of a stable money demand relationship that dictates the movement of prices in the long run, as well as a long run equilibrium involving domestic prices, exchange rate and foreign prices. Also, we found two long term relationships involving money, aggregate price, oil price, as well rice price. In the short run, inflation adjusts to deviation from the long run equilibrium in the monetary market, money growth have a positive impact on inflation while an appreciation of the exchange rates causes inflation to decelerate. We also find that inflation has a considerable inertia, movements in the prices of oil and rice affect the inflation rate in the short term, and the influence of external shocks are quite important. Variance decomposition and impulse response allow to examine the responses of the variables to various shocks.

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