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

  • Asongu Simplice

    ()

    (Yaoundé/Cameroun)

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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File URL: http://www.afridev.org/RePEc/agd/agd-wpaper/Correcting-inflation-with-financial-dynamic-fundamentals.-Which-adjustments-matter-in-Africa.pdf
File Function: Revised version, 2013
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Paper provided by African Governance and Development Institute. in its series Working Papers with number 13/003.

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Length: 25
Date of creation: 14 Apr 2013
Date of revision:
Publication status: Forthcoming in the Journal of African Business
Handle: RePEc:agd:wpaper:13/003
Contact details of provider: Web page: http://www.afridev.org/index.php/en/
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