TY  - JOUR
AU  - Aizenman,Joshua
AU  - Hausmann,Ricardo
TI  - Why is Inflation Skewed? A Debt and Volatility Story
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4837
PY  - 1994
Y2  - August 1994
UR  - http://www.nber.org/papers/w4837
L1  - http://www.nber.org/papers/w4837.pdf
N1  - Author contact info:
Joshua Aizenman
Department of Economics;  E2
1156 High St.
University of California, Santa Cruz
Santa Cruz, CA  95064
Tel: 831/459-4791
Fax: 831/459-5077
E-Mail: jaizen@ucsc.edu

Ricardo Hausman
Harvard Kennedy School
79 JFK St.
Cambridge
MA
02138
Tel: 617-496-3740
E-Mail: ricardo_hausmann@harvard.edu
AB  - 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.
ER  -