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Openness and the Effects of Monetary Policy in Africa

Author

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  • Ekpo, Akpan H.
  • Effiong, Ekpeno L.

Abstract

This paper investigates the relationship between a country's openness to trade and the effects of monetary policy on output growth and inflation in Africa. Theory suggest that monetary policy effectiveness is influenced by the degree of openness to international trade. We apply standard panel data techniques to annual data from the period 1990-2015 for a panel of 37 African countries, and find a strong significant relationship between openness and monetary policy effectiveness in Africa. The empirical results indicate that the effects of monetary policy on output growth and inflation increases and decreases respectively with higher levels of trade openness. Therefore, monetary authorities should place emphasis on the level of openness when designing their choice of optimal monetary policy.

Suggested Citation

  • Ekpo, Akpan H. & Effiong, Ekpeno L., 2017. "Openness and the Effects of Monetary Policy in Africa," MPRA Paper 80847, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80847
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    References listed on IDEAS

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    1. Ekpeno L. Effiong & Godwin E. Esu & Chuku Chuku, 2020. "Financial development and monetary policy effectiveness in Africa," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(1), pages 160-181, June.
    2. Hakan Berument & Nazli Konac & Ozge Senay, 2007. "Openness and the Effectiveness of Monetary Policy: A Cross-country Analysis," International Economic Journal, Taylor & Francis Journals, vol. 21(4), pages 577-591.
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    6. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January.
    7. Georgios Karras, 2001. "Openness to Trade and the Potency of Monetary Policy: How Strong is the Relationship?," Open Economies Review, Springer, vol. 12(1), pages 61-73, January.
    8. Faqin Lin & Dongzhou Mei & Huanhuan Wang & Xi Yao, 2017. "Romer was right on openness and inflation: Evidence from Sub-Saharan Africa," Journal of Applied Economics, Universidad del CEMA, vol. 20, pages 121-140, May.
    9. Markus Brueckner & Daniel Lederman, 2015. "Trade Openness and Economic Growth: Panel Data Evidence from Sub-Saharan Africa," Economica, London School of Economics and Political Science, vol. 82, pages 1302-1323, December.
    10. Cwik, Tobias & Müller, Gernot J. & Wolters, Maik H., 2011. "Does trade integration alter monetary policy transmission?," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 545-564, April.
    11. Mr. Magnus Saxegaard, 2006. "Excess Liquidity and Effectiveness of Monetary Policy: Evidence from Sub-Saharan Africa," IMF Working Papers 2006/115, International Monetary Fund.
    12. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 869-903.
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    Cited by:

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    2. Ferdinand Ahiakpor & William Cantah & William Brafu-Insaidoo & Eric Bondzie, 2019. "Trade Openness and Monetary Policy in Ghana," International Economic Journal, Taylor & Francis Journals, vol. 33(2), pages 332-349, April.

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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