Political Instability and Price Dynamics in Haiti: A Narrative Shocks Analysis

This research paper investigates the underlying causes of Haiti's persistent inflationary surge, particularly the structural break observed since 2018, which defies conventional macroeconomic explanations like the Phillips curve. The authors construct three narrative shock series—political instability, fiscal shocks, and labor market shocks—and estimate their differentiated effects on tradable and non-tradable goods inflation using local projections. The central finding is the dominance of political instability, which leads to a cumulative 5.6% increase in the CPI for tradable goods and 2.8% for non-tradable goods over 24 months, with these effects being statistically significant and persistent.

Fiscal and labor market shocks show weaker, non-significant effects, though labor market shocks uniquely impact non-tradable goods more, suggesting a nascent wage-price spiral. The study highlights that Haiti's inflation is not merely a monetary phenomenon but a complex interplay of real and political shocks, exacerbated by a context of prolonged recession and institutional fragility. It proposes a simple model to rationalize these empirical findings, emphasizing the exchange rate channel for tradable goods and a wage-price spiral for non-tradable goods.

The policy implications underscore the critical role of political stability in achieving price stability and suggest that monetary policy alone is insufficient to address inflation driven by non-monetary factors.