—This paper examines factors affecting inflation in
two groups of countries (high inflation group and low inflation
group) using annual data from 1970 to 2011. An Error
Correction Model based on the Autoregressive Distributed Lag
(ARDL) modeling has been used to explain the short run and
long run impacts of each variable on inflation. The results
respectively indicate that GDP growth and imports of goods
and services have the significant long run impact on inflation in
low inflation countries. Results also indicate that money supply,
national expenditure and GDP growth are the determinants of
inflation which impose long run impact on inflation in high
inflation countries. In the short run likewise, none of the
variables is found to be significant determinants in high
inflation countries. However money supply, imports of goods
and services and GDP growth has significant relationship with
inflation in low inflation countries.
—About ARDL model, dynamic panel data,
GDP growth, inflation, long-run coefficient.
The authors are with the School of Mathematical Sciences, Universiti
Sains Malaysia, 11800 Minden, Penang, Malaysia (e-mail:
Cite: Yen Chee Lim and Siok Kun Sek, "An Examination on the Determinants of Inflation," Journal of Economics, Business and Management vol. 3, no. 7, pp. 678-682, 2015.