Working Paper: NBER ID: w4837
Authors: Joshua Aizenman; Ricardo Hausmann
Abstract: This paper studies the patterns of inflation skewness in 56 countries. Monthly data suggests that inflation is positively skewed. We investigate linkages between skewness and non-linearity, showing that concavity (convexity) will lead to negative (positive) skewness if the independent variable is symmetrically distributed. We construct a public finance model for a developing country that uses inflation tax and external borrowing as the residual means for fiscal financing. The model predicts a convex dependency of inflation on output, where inflation skewness depends positively on inflation volatility, and external debt difficulties magnify the skewness. We conclude the paper with an assessment of the patterns of inflation between 1979-1993 for the 56 countries. Overall, the patterns are consistent with the predictions of the model.
Keywords: Inflation; Skewness; Public Finance; External Debt; Volatility
JEL Codes: E31; E62; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflation volatility (E31) | inflation skewness (E31) |
| external debt (F34) | inflation skewness (E31) |
| inflation volatility (E31) | inflation (E31) |
| inflation (E31) | inflation skewness (E31) |
| fiscal needs (E62) | inflation skewness (E31) |
| output shocks (E39) | inflation skewness (E31) |
| inflation tax (E31) | inflation skewness (E31) |