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The symmetric and asymmetric effect of foreign currency reserves, and money supply on inflation in The Gambia, a linear and nonlinear ARDL perspective

Author

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  • Mohammad O.J. Rashdan
  • Abed Allah Abu Wahdan
  • Foday Joof

Abstract

This paper investigated the symmetric and asymmetric impact of international reserves (FCR) and money supply (M2) on inflation in The Gambia. The paper employed the Nonlinear-ARDL (NARDL) for the asymmetric and the ARDL for the symmetric effect, using monthly data (2005M1-2019M12). The NARDL revealed that a positive shock in foreign reserves is detrimental to inflation, while a negative shock promotes price stability. Similarly, an increase in money supply triggers price instability, while a decline in M2 was found to have a neutral effect. The ARDL results showed that FCR positively affects inflation in the long term but negatively in the short run. However, M2 has a positive relationship with inflation both in the short and long run. The findings indicate that policymakers in The Gambia are faced with a trade-off of either accumulating reserves to protect the economy against external shocks or maintaining price stability.

Suggested Citation

  • Mohammad O.J. Rashdan & Abed Allah Abu Wahdan & Foday Joof, 2025. "The symmetric and asymmetric effect of foreign currency reserves, and money supply on inflation in The Gambia, a linear and nonlinear ARDL perspective," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 15(3), pages 364-382.
    • Handle: RePEc:ids:afasfa:v:15:y:2025:i:3:p:364-382
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