Political instability, political freedom and inflation

Abstract

Using a dynamic panel data approach, we estimate the impact of the political and institutional factors on inflation. Estimation results show that a lower degree of political instability generates lower inflation only for developed and low-inflation countries. However, when political freedom is taken into account, political instability appears to be influential on inflation also for developing countries and turns out to be significant only for high-inflation countries. Such findings emphasize the inflation-reducing effects of political stability depending on democratic political structure.

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