Output – Inflation nexus in selected African countries: A GARCH-MIDAS approach

Abstract

This study delves into the complex interplay between output growth and inflation volatility in 17 selected African countries to compare outcomes across different regions and socioeconomic settings on the African continent. The empirical analysis is carried out using the GARCH-MIDAS approach as this framework enables the use of combined data with mixed frequencies and allows the circumvention of the problem of information loss due to averaging of series. Our findings indicate that output growth plays a moderating role in taming inflation volatility in specific countries, while it does not hold the same significance in other sub-regions. These results emphasize the importance of region-specific policy strategies for effectively managing and addressing inflation fluctuations in diverse economic contexts. Also, the research observes the persistence of inflation volatility, albeit with a mean reverting tendency. Our robustness checks reveal output gap to predict inflation volatility with regional differences.