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1. The Exchange Rate Pass-Through to Inflation and its Implications for Monetary Policy in Cameroon and Kenya

Author:
Dongue Ndongo Patrick Revelli
Publication Date:
01-2020
Content Type:
Research Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
Understanding how domestic prices adjust to the exchange rate enables us to anticipate the effects on inflation and monetary policy responses. This study examines the extent of the exchange rate pass-through to the Consumer Price Index in Cameroon and Kenya over the 1991-2013 period. The results of its econometric analysis shows that the degree of the exchange rate pass-through is incomplete and varied between 0.18 and 0.58 over one year in Kenya, while it varied between 0.53 and 0.89 over the same period in Cameroon. For the long term, it was found to be equal to 1.06 in Kenya and to 0.28 in Cameroon. A structural VAR analysis using impulse-response functions supported the results for the short term but found a lower degree of pass-through for the exchange rate shocks: 0.3125 for Kenya and 0.4510 for Cameroon. It follows from these results that the exchange rate movements remain a potentially important source of inflation in the two countries. Variance decomposition shows that the contribution of the exchange rate shocks is modest in the case of Kenya but significant in that of Cameroon.
Topic:
Development, Economics, Monetary Policy, Exchange Rate Policy, Economic Policy, and Inflation
Political Geography:
Kenya, Africa, and Cameroon

2. Exchange Rate, Petroleum Price and Price Determination in Sierra Leone

Author:
B.I.B. Kargbo
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
The Sierra Leone economy is a net importer with a chronic negative balance of trade. Imports as a percentage of GDP averaged 40.8% between 2001 and 2010. Imports of food, mineral fuels and lubricants accounted for 50.8% of the total value of imports within the same period. Also, the value of the leone depreciated from Le 920.75 in 1996 to Le 4,000 in 2010 while inflation averaged 12.6% for the same period. As a result of the interplay of these forces, fuel prices are most times adjusted upwards to compensate for the depreciation of the leone against the dollar or to match up with increases in the world price of crude oil. This study determines the effects of monetary environment as well as exchange rate movement and petroleum prices on domestic prices in Sierra Leone by estimating a hybrid model of inflation in which inflation responds to its own lags, lags of other variables, and a set of error-correction terms that represent short run disequilibria from the money market, external sector and output that feed into the inflation process.The empirical results from the parsimonious model show that petroleum product prices and exchange rate, as well as monetary factors determine inflation in Sierra Leone.What is also significant from the findings is that the contribution of petroleum prices to domestic price formation is unfounded in the long run, meaning that it is only a short-run phenomenon. The results also support the view that a fair portion of fluctuations in domestic prices is driven by its own shocks.
Topic:
Development, Economics, International Trade and Finance, Monetary Policy, Economic growth, and Inflation
Political Geography:
Africa and Sierra Leone

3. Numerous Factors: Can Sudan Overcome the Inflation Crisis?

Author:
FARAS
Publication Date:
11-2018
Content Type:
Commentary and Analysis
Institution:
Future for Advanced Research and Studies (FARAS)
Abstract:
Sudan grapples with an acute economic crisis, as the inflation rates spiked to unprecedented levels in the past months, causing a severe liquidity crunch due to the cash-strapped banking system. This has coincided with the constant plummeting of the Sudanese pound against the dollar in the past period. The current compound crisis has ensued from the drop in the country’s oil export revenues in the wake of the secession of South Sudan in 2011, while other resources, such as gold, have not been able to fill the growing trade deficit. To contain this crisis, the government should continue its efforts to adhere to its recent economic reform program and to strengthen monetary and fiscal policies to address the existing economic distortions.
Topic:
Economy, Crisis Management, Exchange Rate Policy, and Inflation
Political Geography:
Africa and Sudan

4. Towards An Inflation Targeting Regime in Zambia

Author:
Caesar Cheelo and Thulani Banda
Publication Date:
06-2017
Content Type:
Working Paper
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
In this paper, I seek to discuss the conduct of monetary policy in an inflation targeting framework. The objective is to understand structural and institutional nuances in settings where this framework is successful in controlling inflation and challenges that emerge in the implementation of inflation targeting. I deal with the question: which institutional conditions should exist to support the successful implementation of inflation targeting in countries that use it? I find several institutional and legal elements which are common and can potentially explain much of the success in the implementation of inflation targeting among their monetary authorities. I benchmark these elements with the concepts of transparency and accountability of the central bank which are central tenets in the discussion of inflation targeting. I note that central bank credibility is a key outstanding element in explaining the success of inflation targeting. Components such as central bank independence and commitment to low stable inflation as the overriding objective of monetary policy represent critical preconditions for inflation targeting and can sustain the credibility of monetary policy.
Topic:
Monetary Policy, Inflation, Central Bank, Transparency, and Financial Institutions
Political Geography:
Africa and Zambia