An Econometric Analysis of Inflation in Sierra Leone1

Abstract

This paper is an econometric study of the inflationary process in Sierra Leone. Using data for the 1967:1–1987:4 period, the parameters of a reduced-form inflation equation from an openeconomy IS-LM model were estimated for the Sierra Leonean economy. The results reject the monetarist assertion that velocity is constant and that a percentage change in the money supply leads to an equiproportionate change in the inflation rate in the short run. In the long run, however, the hypothesis that money-supply growth would lead to an equiproportionate increase in the price level could not be rejected. Additionally, the evidence suggests that part of Sierra Leone's inflation is imported from the rest of the world. On the other hand, international capital mobility is not a contributing factor to Sierra Leone's inflation problem.

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