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The Inflationary Effects of Effective Exchange Rate Depreciation in Selected African Countries


  • Mark J. Holmes


This paper investigates the long-run relationship between the nominal effective exchange rate and domestic inflation in selected African countries. Given that the study period is 1979--97, data availability is very limited. A new panel data cointegrating technique proposed by Pedroni is employed which lessens the likelihood of accepting non-stationarity on account of limited test power. We find that effective exchange rate depreciation is inflationary but this is unlikely to outweigh the gains from increased price competitiveness. The results also point towards limited effectiveness in monetary policy controlling inflation. Finally, the Pedroni methodology is expanded through the estimation of panel data error correction models that indicate a fairly sluggish adjustment towards long-run equilibrium. Copyright 2002, Oxford University Press.

Suggested Citation

  • Mark J. Holmes, 2002. "The Inflationary Effects of Effective Exchange Rate Depreciation in Selected African Countries," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 11(2), pages 201-218, June.
  • Handle: RePEc:oup:jafrec:v:11:y:2002:i:2:p:201-218

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    References listed on IDEAS

    1. Dustmann, Christian & Kirchkamp, Oliver, 2002. "The optimal migration duration and activity choice after re-migration," Journal of Development Economics, Elsevier, vol. 67(2), pages 351-372, April.
    2. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    3. Galor, Oded & Stark, Oded, 1991. "The probability of return migration, migrants' work effort, and migrants' performance," Journal of Development Economics, Elsevier, vol. 35(2), pages 399-405, April.
    4. Djajic, Slobodan, 1986. "International migration, remittances and welfare in a dependent economy," Journal of Development Economics, Elsevier, vol. 21(2), pages 229-234, May.
    5. Edgard R. Rodriguez & Susan Horton, 1995. "International Return Migration and Remittances in the Philippines," Working Papers horton-95-01, University of Toronto, Department of Economics.
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