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Monetary Growth and Exchange Rate Depreciation As Causes of Inflation in African Countries: An Empirical Analysis

Author

Listed:
  • Mr. Elie Canetti
  • Mr. Joshua E. Greene

Abstract

This paper examines the relative importance of monetary growth and exchange rate depreciation as causes of inflation in a sample of 10 Sub-Saharan African countries. Causality tests and impulse response functions derived from vector autoregression (VAR) analysis suggest that both monetary expansion and exchange rate adjustments cause inflation in a number of these countries. However, the failure of the tests to attribute the bulk of the variance in inflation in most of the countries to either variable suggests either a problem with the statistical technique or that some other factor--perhaps structural bottlenecks or a measure of overall macroeconomic policy stance incorporating both monetary and exchange rate policy--may be even more important as a determinant of inflation in African countries.

Suggested Citation

  • Mr. Elie Canetti & Mr. Joshua E. Greene, 1991. "Monetary Growth and Exchange Rate Depreciation As Causes of Inflation in African Countries: An Empirical Analysis," IMF Working Papers 1991/067, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1991/067
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    Citations

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    Cited by:

    1. Adeniji, Sesan, 2013. "Exchange Rate Volatility and Inflation Upturn in Nigeria: Testing for Vector Error Correction Model," MPRA Paper 52062, University Library of Munich, Germany.
    2. Jean-Claude Maswana, 2005. "Assessing the Money, Exchange Rate, Price Links during Hyperinflationary Episodes in the Democratic Republic of the Congo," Economics Bulletin, AccessEcon, vol. 15(19), pages 1-10.
    3. Ndung'u, N.S., 1999. "Monetary and Exchange Rate Policy in Kenya," Papers 94, African Economic Research Consortium.
    4. Egwaikhide Festus O, 1997. "Effects of budget deficits on the current account balance in Nigeria : A simulation exercise," Working Papers 70, African Economic Research Consortium, Research Department.
    5. ODUSOLA, Ayodele & AKINLO, Anthony, 2001. "Output, Inflation, And Exchange Rate In Developing Countries: An Application To Nigeria," UNDP Africa Economists Working Papers 307343, United Nations Development Programme (UNDP).
    6. S.P. Jayasooriya, 2009. "A Dynamic Equilibrium between Inflation and Minimum Wages in Sri Lanka," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 3(2), pages 113-132, April.
    7. Marc Klau, 1998. "Exchange rate regimes and inflation and output in Sub-Saharan countries," BIS Working Papers 53, Bank for International Settlements.
    8. repec:ebl:ecbull:v:15:y:2005:i:19:p:1-10 is not listed on IDEAS
    9. Perekunah. B. Eregha, 2022. "Asymmetric response of cpi inflation to exchange rates in oil-dependent developing economy: the case of Nigeria," Economic Change and Restructuring, Springer, vol. 55(2), pages 1091-1108, May.

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