IMF Working Papers

Understanding Inflation Dynamics in Afghanistan

By Karim Badr

July 4, 2025

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Format: Chicago

Karim Badr. "Understanding Inflation Dynamics in Afghanistan", IMF Working Papers 2025, 137 (2025), accessed July 6, 2025, https://doi.org/10.5089/9798229012485.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Over the past two decades, Afghanistan experienced three main periods of deflation, with the lastest being the longest. This paper investigates the macroeconomic factors influencing inflation dynamics in the short and long run, considering both domestic and external factors. Utilizing quarterly data and employing Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) methodologies, the paper finds that the exchange rate is the primary long-term price driver due to Afghanistan's reliance on imports and foreign aid, followed by money supply and international commodity prices. In the short run, inflation is persisent, and broad money have a significant impact on inflation compared to external factors.

Subject: Commodity prices, Consumer price indexes, Currencies, Deflation, Exchange rate pass-through, Exchange rates, Food prices, Foreign exchange, Inflation, Monetary base, Money, Nominal effective exchange rate, Prices

Keywords: Afghanistan, Article IV consultations, Commodity prices, Commodity Prices, Consumer price indexes, Currencies, Deflation, Deflation, Exchange Rate, Exchange rate adjustments, Exchange rate pass-through, Exchange rates, Food prices, Fragile and Conflict States, Imports, Inflation, Inflation, Middle East and Central Asia, Monetary base, Money Supply, Nominal effective exchange rate

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