Monetary Growth and Exchange Rate Depreciation As Causes of Inflation in African Countries: An Empirical Analysis
IMF Working Papers, July 1, 1991
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- Monetary Growth and Exchange Rate Depreciation As Causes of Inflation in African Countries: An Empirical Analysis
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Bibliographic details
- Authors: Elie Canetti, Joshua E. Greene
- Published: July 1, 1991
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451848830.001
Summary of research question and methods
- Examines the relative importance of monetary growth and exchange rate depreciation as causes of inflation in a sample of 10 Sub-Saharan African countries.
- Employs causality tests and impulse response functions derived from vector autoregression (VAR) analysis.
Key empirical findings
- Causality tests and VAR impulse response functions suggest that both monetary expansion and exchange rate adjustments cause inflation in a number of the sampled countries.
- The tests fail to attribute the bulk of the variance in inflation in most of the countries to either monetary growth or exchange rate depreciation.
- The inability to ascribe most inflation variance to the two studied variables suggests:
- either a problem with the statistical technique used, or
- that some other factor may be more important as a determinant of inflation in African countries (examples cited by the authors include structural bottlenecks or a measure of overall macroeconomic policy stance incorporating both monetary and exchange rate policy).
Interpretation and analytical implications
- Monetary expansion and exchange rate adjustments are empirically relevant drivers of inflation in some Sub-Saharan African countries, but they do not fully explain inflation dynamics across the sample.
- Researchers and policymakers should consider additional determinants beyond monetary growth and exchange rate movements when analyzing inflation in African economies, including structural constraints and comprehensive measures of macroeconomic policy stance.
- The mixed results point to potential limitations of VAR-based causality testing in this context and the need to explore alternative empirical strategies or additional variables.
Publication and metadata (exact values preserved)
- Authors: Elie Canetti, Joshua E. Greene
- Date: July 1, 1991
- Pages: 49
- Volume: 1991
- Issue: 067
- Series: Working Paper No. 1991/067
- DOI: https://doi.org/10.5089/9781451848830.001
- Stock No: WPIEA0671991
- ISBN: 9781451848830
- ISSN: 1018-5941
- Subjects and keywords: Consumer price indexes; Consumer prices; Exchange rate adjustments; Exchange rates; Foreign exchange; Inflation; Monetary expansion; Monetary policy; Prices; Africa; Consumer prices; country; exchange rate; Exchange rate adjustments; exchange rate series; exchange rate vis-à-vis; Exchange rates; Inflation; inflation rate; Monetary expansion; monetary growth; movements in Africa; price; price data; Sub-Saharan Africa; WP
IMF Working Paper — views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.