Monetary Policy and Inflation Dynamics in Selected Oil-Producing Economies in Africa: The Autoregressive Distributed Lag Approach and Threshold Analysis

This study investigates the effectiveness of monetary policy in curbing inflation across seven African oil-producing economies over the period 1995–2024 using panel data. The specific objectives lie in examining the effect of money supply on inflation in oil-producing economies and to establish the threshold level of inflation for these economies to ascertain their inflation tolerance. Employing panel autoregressive distributed lag (ARDL) model and smooth transition regression (STR) techniques, the analysis provides robust evidence on how oil price shocks affect the level of inflation and how oil-producing economies can tolerate different levels of inflation. The ARDL model showcases that broad money supply negatively impacted inflation significantly in the short run, but its long run effect is positive and statistically significant. Also, crude oil price shock positively influenced inflation both in the short run and in the long run. The STR analysis highlights cross-country asymmetries in inflation tolerance level: Angola exhibits the highest inflation tolerance threshold, whereas Algeria demonstrates the lowest. The findings underscore the imperative for a more diversified and context-specific monetary policy framework in African oil-producing economies. Such a framework should integrate macroprudential instruments and enhanced liquidity management while assigning greater weight to exchange rate dynamics. Policy implications suggest the adoption of flexible yet strategically managed exchange rate regimes to strengthen resilience against external shocks and anchor inflation expectations.