Financial Dimensions of Inflationary Pressure in Developing Countries: An In-depth Analysis of Policy Mix

Ali, Amjad and Khokhar, Bilal and Sulehri, Fiaz Ahmad (2023): Financial Dimensions of Inflationary Pressure in Developing Countries: An In-depth Analysis of Policy Mix.

Abstract

This study explores the relationship between inflationary pressure and policy mix in developing countries over the period of 1995 to 2022. Money supply, unemployment rate, regulatory policies, currency rate, remittances, and amount of foreign debt are explanatory factors, whereas inflationary pressure is the dependent variable. To assess the influence of these factors on inflation, panel least squares, and fixed effect models are utilized. The study's findings shed light on the complicated links between financial factors and inflationary pressures in developing nations. The study demonstrates that in developing nations, the money supply has a negative and considerable influence on inflation. The study found that unemployment had a favorable but insignificant influence on inflation pressures in emerging nations. Furthermore, the research demonstrates that regulatory measures have a negative and considerable influence on inflationary pressures. The exchange rate has been proven to have a positive and considerable impact on inflationary pressures in emerging nations, highlighting the necessity of prudent exchange rate management in mitigating the inflationary implications of currency decline. Furthermore, remittances have a negative and considerable influence on inflationary pressures, implying that increasing financial inclusion and investment possibilities for remittance-receiving families might help to stabilize inflation in developing countries. Finally, the study emphasizes that the quantity of foreign debt in emerging nations has a positive and considerable influence on inflationary pressures. According to the study, careful monitoring and control of the money supply, addressing unemployment through labor market reforms and investments, implementing effective regulatory restrictions, prudent exchange rate management, promoting financial inclusion for remittance recipients, and pursuing sustainable debt levels are all important.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money Supply, Unemployment Rate, Regulatory Policies, Currency Rate, Foreign Debt, Remittances
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers

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