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Subject: Economic Development | Issued in: 2012 | Symbol: E/ESCWA/EDGD/2011/Technical paper.4

Inflation Dynamics in the ESCWA Region: A Vector Autoregressive Analysis

The findings of this study are intended to help advance the understanding of the causes of inflation in the United Nations Economic and Social Commission for Western Asia (ESCWA) region.  Understanding the causes of inflation is crucial, since the efficiency of the various tools for addressing inflation is dependent on the source.  The study undertakes a vector autoregressive analysis of seven ESCWA member countries to study the dynamics of inflation over the last decade.  In Kuwait and Saudi Arabia, domestic shocks explain a major part of inflation dynamics, meaning that domestic policies should be able to control inflation.  In Egypt and Jordan, by contrast, global variables explain some 70 per cent of inflation, and the impact of domestic monetary policies may therefore be limited, necessitating the consideration of other options to control inflation.  In Oman, the Syrian Arab Republic and Yemen, changes in the US$ exchange rate vis-à-vis the Euro have had a significant impact on domestic inflation, suggesting that the exchange rate regime may need to be revisited.

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