The Inflationary Effects of Effective Exchange Rate Depreciation in Selected African Countries

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Periodical article

Title:	The Inflationary Effects of Effective Exchange Rate Depreciation in Selected African Countries
Author:	Holmes, Mark J.
Year:	2002
Periodical:	Journal of African Economies
Volume:	11
Issue:	2
Period:	June
Pages:	201-218
Language:	English
Geographic term:	Africa
Subjects:	inflation devaluation Economics and Trade
External link:	https://jae.oxfordjournals.org/content/11/2/201.full.pdf
Abstract:	This paper investigates the long-run relationship between the nominal effective exchange rate and domestic inflation in a sample of African countries comprising Burundi, Cameroon, Central African Republic, Gabon, Ghana, Ivory Coast, Lesotho, Mali, Morocco, Nigeria, South Africa and Togo. Given that the study period is 1979-1997, data availability is limited. A new panel data cointegrating technique proposed by P. Pedroni (1999, 2000, 2001) is employed which lessens the likelihood of accepting non-stationarity on account of limited test power. The author finds that effective exchange rate depreciation is inflationary but this is unlikely to outweigh the gains from increased price competitiveness. The results also point towards limited effectiveness in monetary policy controlling inflation. Finally, the Pedroni methodology is expanded through the estimation of panel data error correction models that indicate a fairly sluggish adjustment towards long-run equilibrium. Bibliogr., notes, ref., sum. [Journal abstract]