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guardian
07-12-2010, 02:01 PM
Inflation and Conflict in Iraq: The Economics of Shortages Revisited

Author/Editor:Grigorian, David A. | Kock, UdoAuthorized for Distribution:July 1, 2010Electronic Access:

Free Full Text (http://www.imf.org/external/pubs/ft/wp/2010/wp10159.pdf) (PDF file size is 1,039KB)

http://www.imf.org/external/pubs/ft/wp/2010/wp10159.pdf

Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Containing inflation has turned out to be one of the most challenging aspects of economic management in Iraq. This paper posits that conventional as well as unconventional factors explain inflation dynamics in the recent past. We build a theoretical model based on the insights into the workings of socialist economies under supply shortages provided by Shleifer and Vishny (1992) to help explain price dynamics. In the model, strategic behavior of the fuel distribution monopolist results in fuel shortages, with implications for fuel and non-fuel inflation. A number of step-wise adjustments of administered prices for fuel products since December 2005 offer an interesting experiment to help study this behavior. Our findings show that inflation may have been influenced by shortages in fuel and non-fuel commodity supplies, which themselves are driven by violence and rent-seeking.

http://www.imf.org/external/pubs/cat/longres.cfm?sk=24035.0