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Working Paper 249 - Threshold Effects of Inflation on Economic Growth in Africa: Evidence from a Dynamic Panel Threshold Regression

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Abstract

This study examines nonlinearities in the inflation-growth nexus in Africa. A dynamic panel threshold regression is applied to account for the potential endogeneity bias in the model. The findings of this study confirm the existence of nonlinearities in the inflation-growth nexus. An inflation threshold of 6.7% is estimated for the whole sample, 9% for the sub-sample of low-income countries and 6.5% for middle-income countries. The findings suggest that low inflation is growth-enhancing for the sub-sample of middle-income countries but neither affects economic growth for the whole sample nor for the sub-sample of low-income countries. However, inflation above the threshold is detrimental to economic growth for all the cases considered. The findings of this study may be useful to African monetary policymakers as they decide on inflation targets to adopt to avoid the detrimental effects of high inflation while reaping the growth benefits of low inflation.

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  • Ndoricimpa Arcade, 2017. "Working Paper 249 - Threshold Effects of Inflation on Economic Growth in Africa: Evidence from a Dynamic Panel Threshold Regression," Working Paper Series 2359, African Development Bank.
    • Handle: RePEc:adb:adbwps:2359
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    8. Franses, Philip Hans & Janssens, Eva, 2018. "Inflation in Africa, 1960–2015," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 57(C), pages 261-292.
    9. Nenubari John Ikue & Lamin Mohammed Magaji & Samuel Zeb-Omoni & Mohammed, Aminu Usman & Joseph Osaro Denwi, 2021. "Trade Balance and Oil Shocks in African Oil Exporting Countries: A Panel Threshold Regression," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(4), pages 150-166, October.
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    13. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Tahir, Hammad, 2021. "What do we know about the inflation-hedging property of precious metals in Africa? The case of leading producers of the commodities," Resources Policy, Elsevier, vol. 72(C).
    14. Witness Nyasha Bandura & Temitope L. A. Leshoro, 2022. "Inflation And Financial Development In Sub-Saharan Africa," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(233), pages 85-112, April – J.
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