Global Inflation Problem and Macroeconomic Fluctuations in Sub-Sahara Africa Empirical Analysis of Inflation Shocks from Key Trading Partners

Abstract

Evolving inflationary pressure from the global economy, especially advanced countries and its new directional impacts on emerging economies have provided new evidence on the validity of international transmission of economic shocks from key trading partners as sources of macroeconomic fluctuations in sub-Sahara African countries. A Global Vector Autoregressive (GVAR) model was estimated for inflationary shocks from US, UK, Euro and China on the performance of macroeconomic variables in 21 SSA countries. These countries are grouped into three country classes – oil-rich, other resources-rich and non-resource based economies. This study confirmed that inflation shocks from these economies are significant in driving the macroeconomic fluctuation (Real Gross Domestic Product (rGDP), inflation, exchange rate and short-term interest rate) in the region. In addition, the spillover effects of these were also assessed while noting the divergences of impacts based on the economic structures of economies in the region. The oil-rich countries were found to be the most affected by inflationary shocks from the U.S, China, and Euro. JEL: E17, E32, F02, F62