The study investigates the causes of inflation in Cambodia by employing VAR approach. The findings show that the main cause of inflation in overall is M2 whereas other variables such as exchange rate, interest lending rate, and dollarization show no effect on the change in inflation rate. The additional experiments suggested that foreign currency deposits contribute to an increase in money growth and hence some policy implications such as implementing one of the monetary policies to keep exchange rate stable so as to encourage foreign investors to use Riel currency in their investments and to de-dollarize the economy, although it surely will take a long time.
I would like to further investigate the determinants of inflation in Cambodia by including some other variables such as asset prices, money in circulation, which i kept it constant in my previous test. However, my senior said including many variables in VAR, the result will be inaccurate.
Therefore, I wonder if there is any suggested model for the test.
