Monetary Growth and Exchange Rate Depreciation As Causes of Inflation in African Countries: An Empirical Analysis

Abstract

I his is ;i winking p;i|K'i and llu-author would welcome :iny lomiiiL'Mls nn lite pK'sciit k'Kl. Citations should rclcr to an unpublished manuscript, mentioning the author and the date nl issuance hy the International Monetary Fund The views expressed arc those of the author and do not necessarily represent those of the Fund.

Separating Monetary and Structural Causes of Inflation

“…As acknowledged by Canetti and Greene (1991), inflation management is a significant problem in sub-Saharan Africa in the past several decades. Ghana's inflation averaged 49.…”

“…He, however, argues that the monetary single equation adequately explains the inflation dynamics in these countries with only domestic factors explaining the inflation dynamics in Ghana. Canetti and Greene (1991) use VAR to separate the influence of monetary growth and exchange rate depreciation in explaining inflation in ten African countries and find that monetary dynamics dominate inflation levels in four of the countries, including Ghana, while exchange rates dynamics dominate in three of them. Imimole and Enoma (2011) studying the ~ 18 ~ causes of inflation in Nigerian using an Autoregressive Distributed Lag model concludes that exchange rate depreciation, monetary growth and real output constraints are the main explanatory factors for the behavior of inflation in that country.…”

“…Some studies find that neither monetary nor structural factors alone explain inflation completely especially in Africa. Among the most relevant studies on monetary growth, exchange rate and inflation nexus in Africa are Chhibber, Cottani, Firuzabadi, and Walton (1989), London (1989), Tegene (1989), Canetti and Greene (1991) and Imimole and Enoma (2011). Chhibber et al (1989) observe that inflationary process goes beyond simple monetary explanation and identify three transmission mechanisms for the inflationary dynamics in Zimbabwe.…”

Exchange Rate Pass-Through in Ghana

“…They find zero pass-through to inflation in Ethiopia and incomplete passthrough in other African countries during the period 1997-2000. Canetti and Greene (1992) find that exchange rate movements and monetary expansion affect consumer price inflation in sub-Saharan Africa (SSA). In particular, they find that exchange rates have a significant "Granger causal" impact on prices in Tanzania, Sierra Leone, and Democratic Republic of Congo.…”

The Impact of Monetary Policy on Agricultural Development In Nigeria (1970-2010)

“…They said that an important aim of monetary and credit policy should be a sound banking system kept in check with strong prudential regulation and supervision. Nnanna (2001) [16], examines that the evolution of monetary policy in Nigeria in the past four decades and observed that though, the Monetary management in Nigeria has been relatively more successful during the period of financial sector reform, the socio-economic and political milieu, including the legal framework under which the Central Bank of Nigeria has operated, was the critical factor that influenced the outcome of monetary policy. He further noted that the granting of instrument autonomy to the CBN has enhanced its operational efficiency, in terms of its ability to achieve its key objective of monetary policy, namely price stability.…”