Examining the nexus among inflation, output growth, nominal and real uncertainty: Empirical Evidence from Selected African Countries and Regional Economies

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Date
2014
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Publisher
University of Dar es Salaam
Abstract
This study examines the relationship among inflation, output growth and their respective uncertainties for selected African countries. It also estimates the threshold level of inflation and examines its impact on the relationship between inflation and growth in Africa. The study uses an asymmetric multivariate GARCH model to estimate inflation uncertainty and output growth uncertainty and then applies Bootstrap causality approach to account for the problem of non-normality in error terms and the presence of ARCH effects, to examine the causal links among inflation, output growth and their uncertainties. To examine the impact of inflation threshold on the relationship between inflation and economic growth, dynamic panel threshold modeling is applied. The findings indicate that the way inflation, output growth and their uncertainties interrelate is country specific. The estimated inflation threshold is found to be 1.4 percent for CEMAC, 13.1 percent for COMESA, 12.77 percent for SADC, 8.15 percent for WAMZ and 1.03 percent for UEMOA, and 8.27 percent for Africa as a whole. Inflation is detrimental to growth when it rises above the threshold. The findings of the study have important implications. First, the level of inflation can be the cause or the effect of inflation uncertainty. Second, inflation uncertainty is not necessarily part of the welfare costs of inflation and is not necessarily bad since it was found that it can promote output growth. Third, stabilization policies should be applied carefully since they can promote or harm output growth. Fourth, increasing and sustaining output growth is a way of reducing both inflation uncertainty and output growth uncertainty. Finally, African Regional Economic Communities should adjust their convergence criteria concerning inflation since the estimated inflation threshold was found to be below or above the current target.
Description
Available in print form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HG229.A35N3756)
Keywords
Inflation (Finance), Africa
Citation
Ndoricimpa, A,(2014) Examining the nexus among inflation, output growth, nominal and real uncertainty: Empirical Evidence from Selected African Countries and Regional Economies.Doctoral dissertation, University of Dar es Salaam, Dar es Salaam.
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