Fiscal determinants of inflation: a primer for the Middle East and North Africa, Issues 2006-2216
International Monetary Fund, 2006 - Business & Economics - 15 pages
"Many countries in the Middle East and North Africa (MENA) region have recently experienced surges in money growth that apparently have not generated significant inflationary pressures. Moreover, several MENA countries have followed monetary policy rules that according to standard monetary theory should have produced macroeconomic instability and possibly hyperinflation. We argue that the Fiscal Theory of the Price Level could usefully provide insights on these developments. Our main conclusion is that a sound fiscal position constititutes a necessary condition for macroeconomic stability whereas "sound" monetary policy is neither sufficient nor necessary. Hence, fiscal policy and public debt deserve particular attention for maintaining macroeconomic stability, by and large consistent with Fund policy advice to MENA countries."
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absence of GDP advice to MENA assets broad money cash changes in real currency discount factor discussion on monetary East and North Egypt equation equilibrium exchange rate peg Fanizza fiscal dominance fiscal policy Fiscal Theory fixed money stock fixed nominal interest focus on reserve FTPL Fund policy advice government's budget constraint government's intertemporal budget Hence hyperinflation implies income velocity inflation in Algeria inflows from oil International Monetary Fund intertemporal budget constraint Lebanon level of debt macroeconomic stability MENA countries MENA region Middle East Missing Inflation monetary policy rules money demand function money growth Morocco nominal anchor nominal interest rate non-Ricardian North Africa open economy Optimization also requires P,cu past decade period public debt public debt-to-GDP ratio real debt Real Exchange Rate real money balances real seigniorage revenues reasonably strong fiscal REER targeting reserve money Ricardian standard model subdued taxes and seigniorage transversality condition Tunisia unified analytical framework velocity of money