Dynamics of inflation in Sub-Saharan Africa: the role of foreign inflation, official and parallel market exchange rates, and monetary growth

Abstract

The study investigates the effects of monetary growth; rates of depreciation of domestic currency in both the official and black markets; and foreign inflation rate on domestic (consumer price) inflation in Sub-Saharan Africa. The lags in the effects of these variables are also analysed. Quarterly data over 1980:1 to 1991:4 pooled across 32 countries are employed and separate analyses are conducted for the CFA and non-CFA groups of countries. Our findings suggest that the variables tested for exert significant effects on the inflation rates in the non-CFA countries while only the foreign inflation rate and, to a smaller extent, the rate of depreciation of domestic currency in the parallel market have affected the inflation rates in the CFA countries.