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Openness and the Effects of Monetary Policy in Africa

Listed author(s):
  • Ekpo, Akpan H.
  • Effiong, Ekpeno L.

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.

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File URL: https://mpra.ub.uni-muenchen.de/80847/1/MPRA_paper_80847.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 80847.

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Date of creation: Aug 2017
Handle: RePEc:pra:mprapa:80847
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  1. Effiong, Ekpeno & Esu, Godwin & Chuku, Chuku, 2017. "Financial Development and Monetary Policy Effectiveness in Africa," MPRA Paper 79732, University Library of Munich, Germany.
  2. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 869-903.
  3. Hakan Berument & Burak Doan, 2003. "Openness and the effectiveness of monetary policy: empirical evidence from Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 10(4), pages 217-221.
  4. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-398, September.
  5. 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.
  6. 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.
  7. Bruno Ćorić & Lena Malešević Perović & Vladimir Šimić, 2016. "Openness and the Strength of Monetary Transmission: International Evidence," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 66(4), pages 639-659, December.
  8. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January.
  9. 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.
  10. 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.
  11. repec:cem:jaecon:v:20:y:2017:n:1:p:121-140 is not listed on IDEAS
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