Inflation Dynamics in an Open Economy Phillis Curve Framework: A Case of Nigeria and Sri Lanka

One of the central features of developing countries since the 1960s high rate of inflation, despite the fact that it is undesirable phenomenon. The causing factors of high inflation remained inconclusive by both monetary and fiscal perceptions. This paper seeks to shed some light on the determinants of inflation in Nigeria and Sri Lanka in an open economy Phillips curve framework. The study employed ordinary least squares technique (OLS) on multiple regression equation models and Error Correction Model (ECM) for both countries, utilizing data sourced from secondary sources for the period of 1963 to 2013. The main finding are that monetary variables (money supply, interest rate) as well as import and exchange rate play central role in the inflationary process in these countries, and the election (political activities contribute positively to inflation in Nigeria. The paper then recommends that both the policy makers of countries should develop real political will to overcome corruption especially during complain and election as well as fiscal and monetary discipline to be able to have greater control on both domestic and foreign economic activities so as to meet the objective of maintaining price stability