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Correcting inflation with financial dynamic fundamentals: which adjustments matter in Africa?

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  • Asongu, Simplice A

Abstract

This paper assesses the adjustment of inflation with financial dynamic fundamentals of money (financial depth), credit (financial activity) and efficiency. Three main findings are established. (1) There are significant long-run relationships between inflation and the fundamentals. (2) The error correction mechanism is stable in all specifications but in case of any disequilibrium, only financial depth is significant in adjusting inflation to the long-run relationship. (3) In the long-run, short-term adjustments in the ability of banks to transform money into credit do not matter in correcting inflation. This is most probably due to surplus liquidity issues. Policy implications are discussed.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46424.

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Date of creation: 18 Sep 2012
Date of revision: 14 Apr 2013
Handle: RePEc:pra:mprapa:46424

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Keywords: Excess money; inflation; credit; Africa;

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Cited by:
  1. Asongu Simplice, 2013. "New Empirics of monetary policy dynamics: evidence from the CFA franc zones," Working Papers 13/016, African Governance and Development Institute..
  2. Asongu, Simplice A, 2013. "How would monetary policy matter in the proposed African monetary unions? Evidence from output and prices," MPRA Paper 48496, University Library of Munich, Germany.
  3. Asongu, Simplice A, 2013. "Does Money Matter in Africa? New Empirics on Long- and Short-run Effects of Monetary Policy on Output and Prices," MPRA Paper 48494, University Library of Munich, Germany.

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