This paper presents an empirical investigation of inflation dynamics in Libya over the period 1964–2010, using cointegration and error correction models. While inflation inertia is found to be a key determinant of consumer price inflation, the econometric results indicate that government spending, money supply growth, global inflation, and exchange rate pass-through play central roles in the inflation process. These findings are broadly consistent with the experience of other countries that are natural resource dependent. We also find evidence that the imposition and subsequent removal of international sanctions on Libya had a noteworthy impact on consumer price inflation. Collectively, our estimates indicate that the deviations from an equilibrium path initiate significant adjustments in inflation dynamics, and that closer coordination between monetary and fiscal policies would improve the balance between economic growth and price stability.
The Founding Treaty of the Arab Maghreb Union (AMU), signed in February 1989, calls for a strengthening of all ties among its member states (Algeria, Libya, Mauritania, Morocco, and Tunisia), including a gradual move toward free circulation of goods, services, and factors of production among them. The paper provides an overview of the economic conditions in the AMU member countries, describes the institutional arrangements under the AMU, and assesses the progress made in attaining the economic objectives of the Treaty. In so doing, the paper identifies the main obstacles encountered in making progress toward the objectives of the Treaty and reviews actions that need to be taken to make further progress in the coming years. In that context, the paper also examines the relationship of the AMU countries with the European Union (EU).