Modeling Inflation Dynamics in Sudan 2008-2013

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Onour, Ibrahim A.
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University of Khartoum
The primary purpose of the paper is to set up a macroeconomic model depicting the domestic inflation dynamics of a conflict economy impeded by a parallel market for foreign exchange as well as an internal political conflict. To investigate the sensitivity of domestic inflation to macro variables using a time-varying coefficient estimation approach employed on monthly data from the Sudan that was collected from January 2008 to December 2013. While government spending is the main driver of domestic inflation, the increasing role of a parallel market for foreign exchange and imported inflation on domestic inflation reveal an increasing sensitivity of Sudan’s economy to external shocks. Significantly, the estimate of the domestic inflation rate predicted by the model is about 22% above the officially-announced inflation rate. To manage inflation the rate of state currency production must be regulated and a more flexible official foreign exchange rate policy must be adopted.
Modeling Inflation Dynamics; Sudan