Conference – 2009 What Drives Inflation in the World?

Table 3: Determinants of Inflation – ARDL-based Estimates
PMG MG
(1) (2) (3) (4) (1) (2) (3) (4)
LONG-RUN PARAMETERS
Inflation-related variables
High inflation 0.307***
(22.77)
0.324***
(22.40)
0.300***
(22.13)
0.295***
(21.09)
  0.400***
(4.69)
0.258***
(4.08)
0.342***
(6.77)
0.451***
(7.45)
Monetary and exchange rate regime
Inflation targeting −0.053***
(8.17)
−0.038***
(5.86)
−0.054***
(8.30)
−0.063***
(8.67)
  −0.120
(1.63)
−0.045
(0.80)
−0.031
(0.59)
−0.02
(0.42)
Exchange rate regime −0.025***
(10.26)
−0.028***
(10.51)
−0.024***
(9.84)
−0.035***
(13.07)
  −0.029***
(3.11)
−0.025***
(2.81)
−0.029***
(4.12)
−0.036***
(5.83)
Openness
Trade openness 0.022**
(2.51)
0.016*
(1.86)
0.021**
(2.45)
0.019***
(2.67)
  0.153**
(2.45)
0.131***
(3.20)
0.103**
(2.23)
0.081**
(2.03)
Capital openness −0.013***
(8.32)
−0.013***
(8.44)
−0.013***
(8.37)
−0.012***
(8.02)
  0.008
(0.48)
−0.001
(0.19)
−0.02*
(1.75)
−0.016**
(2.03)
Relevant external inflation 0.015 0.051       −0.241 0.159    
Normalised (0.23) (0.68)       (0.84) (0.74)    
Foreign output gap   −0.17         −1.107    
Trade-weighted average   (0.86)         (1.54)    
Structural and institutional variables
Fiscal surplus −0.122*** −0.139*** −0.143*** −0.201***   −0.489* −0.246* −0.31 −0.363*
Per cent to GDP (3.09) (3.29) (3.78) (4.81)   (1.87) (1.72) (1.63) (1.85)
Income per capita −0.007 0.002 −0.006     −0.056 −0.121 −0.046  
Logarithm (0.64) (0.26) (0.61)     (0.49) (1.76) (0.63)  
Domestic private credit 0.001
(0.41)
        0.025
(0.87)
     
Cyclical domestic and foreign variables
Domestic output gap 0.394*** 0.432*** 0.409*** 0.399(a)   −0.18 0.242 −0.083 0.009
Pooling (5.09) (4.64) (5.18) (0.68)   (0.88) (1.33) (0.46) (0.06)
ERROR CORRECTION
Adjustment velocity −0.513***
(18.52)
−0.462***
(17.62)
−0.511***
(18.05)
−0.451***
(14.74)
  −0.681***
(21.60)
−0.877***
(18.06)
−0.83***
(21.99)
−0.708***
(23.31)
SHORT-RUN PARAMETERS
Oil price gap −0.009 −0.001 −0.005     −0.015 −0.002 −0.011*  
Deviation (%) from trend (1.25) (0.23) (0.94)     (1.62) (0.38) (1.69)  
Δ capital openness 0.006*
(1.72)
0.005
(1.52)
0.007**
(2.08)
0.005
(1.39)
  0.015
(1.12)
−0.009
(1.47)
0.003
(0.49)
−0.001
(0.22)
Δ income per capita −0.069   −0.102     −0.364*   −0.279  
In logarithms (0.57)   (0.84)     (1.91)   (1.54)  
Δ fiscal surplus 0.203***
(3.42)
0.234***
(3.91)
0.225***
(3.96)
0.217***
(4.13)
  0.499***
(5.18)
0.283***
(2.88)
0.364***
(4.24)
0.318***
(3.96)
Δ domestic output gap −0.331**
(2.46)
−0.444***
(8.48)
−0.34**
(2.47)
−0.455***
(5.81)
  0.195
(0.92)
−0.211**
(2.47)
0.105
(0.50)
−0.247***
(3.12)
Δ foreign output gap   −0.37*
(1.90)
        −0.187
(0.56)
   
Constant −0.001
(0.27)
0.001
(0.36)
−0.001
(0.48)
0.001
(0.44)
  0.107
(1.39)
−0.001
(0.02)
0.055
(0.84)
0.004
(0.32)
DFE Hausman test
(1) (2) (3) (4) (1) (2) (3) (4)
LONG-RUN PARAMETERS
Inflation-related variables
High inflation 0.346***
(29.63)
0.3483***
(29.79)
0.3467***
(29.85)
0.3483***
(29.76)
  1.21
(0.27)
1.15
(0.28)
0.73
(0.39)
7.06
(0.01)
Monetary and exchange rate regime
Inflation targeting −0.0455***
(4.28)
−0.0451***
(4.29)
−0.0442***
(4.22)
−0.046***
(4.38)
  0.83
(0.36)
0.002
(0.90)
0.2
(0.66)
0.78
(0.38)
Exchange rate regime −0.0362***
(9.70)
−0.0368***
(9.85)
−0.0362***
(9.78)
−0.0369***
(9.91)
  0.18
(0.67)
0.09
(0.76)
0.56
(0.45)
0.02
(0.88)
Openness
Trade openness 0.0502***
(2.95)
0.0437***
(2.60)
0.0515***
(3.04)
0.0431***
(2.61)
  4.49
(0.03)
8.21
(0.00)
3.24
(0.07)
2.5
(0.11)
Capital openness −0.0113***
(4.05)
−0.0114***
(4.09)
−0.0112***
(4.08)
−0.0115***
(4.14)
  1.62
(0.20)
2.48
(0.11)
0.4
(0.53)
0.22
(0.64)
Relevant external inflation 0.1103 0.1004       0.84 0.29    
Normalised (0.89) (0.80)       (0.36) (0.59)    
Foreign output gap   −0.0212         1.83    
Trade-weighted average   (0.07)         (0.18)    
Structural and institutional variables
Fiscal surplus −0.3216*** −0.3269*** −0.3119*** −0.334***   2.02 0.6 0.8 0.72
Per cent to GDP (4.45) (4.56) (4.37) (4.67)   (0.15) (0.44) (0.37) (0.40)
Income per capita −0.018 −0.0104 −0.0182     0.19 3.28 0.29  
Logarithm (1.09) (0.65) (1.12)     (0.66) (0.07) (0.59)  
Domestic private credit 0.0024
(0.77)
        0.72
(0.40)
     
Cyclical domestic and foreign variables
Domestic output gap 0.2261* 0.2349 *0.2254* 0.218*   9.22 1.49 8.97 (a)
Pooling (1.77) (1.83) (1.78) (1.74)   (0.00) (0.22) (0.00)  
ERROR CORRECTION
Adjustment velocity −0.507***
(34.53)
−0.5038***
(34.59)
−0.5068***
(34.73)
−0.5027***
(34.77)
 
SHORT-RUN PARAMETERS
Oil price gap −0.0055 −0.0036 −0.0037  
Deviation (%) from trend (0.83) (0.56) (0.57)  
Δ capital openness 0.0036
(1.34)
0.0031
(1.13)
0.0032
(1.18)
0.0032
(1.18)
 
Δ income per capita −0.1088*   −0.1265**  
In logarithms (1.92)   (2.22)  
Δ fiscal surplus 0.2213***
(5.45)
0.2153***
(5.35)
0.2203***
(5.49)
0.2172***
(5.42)
 
Δ domestic output gap −0.2866***
(3.43)
−0.4187***
(8.28)
−0.2707***
(3.25)
−0.4182***
(8.29)
 
Δ foreign output gap   −0.0375
(0.28)
 

Notes: Absolute value of t-statistics in parentheses. *, ** and*** denote significance at the 10, 5 and 1 per cent levels respectively. Hausman test's null hypothesis: parameter homogeneity
(a) Denotes that parameter homogeneity is not imposed

Source: authors' calculations