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Analysis of Inflation Determinants in Afghanistan: An Empirical Evaluation

Mr Aimal Mirza, Mr Jawad Faryad

Volume 1 Issue 3 | Jul 2018

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Abstract

This paper employ econometric techniques Ordinary Least Square Method (OLS) to analyze the determinants of inflation in Afghanistan, focusing particularly on the relationships that exist between the Afghanistan consumer price index (CPI, as the dependent variable, and the Currency in Circulation (CIC), and nominal USD/Af exchange rate, being the explanatory variables and probable determinants of inflation rate in Afghanistan. Inflation equations that were estimated used monthly data from March 2004-to August 2017 for Afghanistan, and it was found that in the short run, domestic prices are influenced by currency in circulation and fluctuation of exchange rate. This conclusion shows that domestic variables are very effective on inflation but other studies found that Afghanistan inflation mostly is determined by external shocks such as world oil and commodity price and world food price because Afghanistan is one of highly imported oil and food country in the world. However, external variables are not considered in this study.