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

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.

Climate Change and Inflation in Eastern and Southern Africa

“…Under inefficient markets, the price would be inflexible due to, for example, a lack of competition and information, [41,43,50]. This finding is consistent with previous work, especially for emerging markets and developing countries [63][64][65].…”

Behavioural perspective of the inflation targeting strategy: The case of Serbia

“…Taking into account empirical findings of the studies which focused on the inflation determinants (particularly [42], [50] and [3]) as a convenient econometric approach we constructed an Autoregressive Distributed Lag (ARDL) model applicable for both non-stationary time series as well as for times series with mixed order of integration [58, p. 79], given the fact that real economic data do not often express stationary behaviour. In case of selected variables for Serbia, most time series expressed nonstationary nature in the observed period (from Q1 2009 to Q4 2021), which was the main reason we opted for the ARDL model, which could have provided realistic and efficient estimates.…”

“…The corporate sector inflation expectations for one year do not impact the actual inflation in the long run. By running ARDL Error Correction Regression, we obtained Error Correction Term (ECT t-1 ), which indicates the speed of adjustment from short run to long run equilibrium [5,3,984]. High estimated coefficient of the ECT t-1 , which is both negative and statistically significant (at 1% significance level), revealed that potential disequilibrium in the ARDL model can be adjusted in the long run with higher speed in case of any type of shock in the explanatory variables [10, p. 147].…”