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Currency depreciation and inflationary pressure vis-Ã -vis monetary intervention: perspectives on growth and policy implications

Author

Listed:
  • Samson Edo

    (Department of Economics, University of Benin, Benin City, Nigeria)

  • Eseosa Joy Sowemimo

    (Department of Economics, University of Benin, UBenin City, Nigeria)

Abstract

This study investigates the effects of currency depreciation, inflation, and efforts to offset depreciation through foreign exchange intervention in a sample of ten Sub-Saharan African countries considered to have had the worst performing currencies from 1990 to 2023. Using dynamic ordinary least squares and error correction estimation techniques we show that depreciation and inflation have significant negative effects on growth, which cannot be offset by central bank interventions. Gross fixed investment and trade openness help promote growth. Diagnostic tests indicate that the estimates are reliable. They are also robust to the exclusion of several explanatory variables. We find a bidirectional Granger causality between currency depreciation and growth, and strong predictive capacity of the estimated model. These findings provide support for the view that greater exchange rate flexibility does not help promote exports and growth in economies with pronounced structural weaknesses and inefficient macroeconomic policies.

Suggested Citation

  • Samson Edo & Eseosa Joy Sowemimo, 2026. "Currency depreciation and inflationary pressure vis-Ã -vis monetary intervention: perspectives on growth and policy implications," Public Sector Economics, Institute of Public Finance, vol. 50(1), pages 141-158.
    • Handle: RePEc:ipf:psejou:v:50:y:2026:i:1:p:141-158
    DOI: 10.3326/pse.50.1.7
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    Keywords

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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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