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Fighting consumer price inflation in Africa. What do dynamics in money, credit, efficiency and size tell us?

Author

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  • Simplice A, Asongu
Abstract
Purpose – The purpose of this paper is to examine the effects of policy options in financial dynamics (of money, credit, efficiency and size) on consumer prices. Soaring food prices have marked the geopolitical landscape of African countries in the past decade. Design/methodology/approach – We limit our sample to a panel of African countries for which inflation is non-stationary. VAR models from both error correction and Granger causality perspectives are applied. Analyses of dynamic shocks and responses are also covered. Six batteries of robustness checks are applied to ensure consistency in the results. Findings – (1) There are significant long-run equilibriums between inflation and each financial dynamic. (2) When there is a disequilibrium, while only financial depth and financial size could be significantly used to exert deflationary pressures, inflation is significant in adjusting all financial dynamics. In other words, financial depth and financial size are more significant instruments in fighting inflation than financial efficiency and activity. (3) The financial intermediary dynamic of size appears to be more instrumental in exerting a deflationary tendency than financial intermediary depth. (4) The deflationary tendency from money supply is double that based on liquid liabilities. Practical implications – Monetary policy aimed at fighting inflation only based on bank deposits may not be very effective until other informal and semi-formal financial sectors are taken into account. It could be inferred that, tight monetary policy targeting the ability of banks to grant credit (in relation to central bank credits) is more effective in tackling consumer price inflation than that, targeting the ability of banks to receive deposits. In the same vein, adjusting the lending rate could be more effective than adjusting the deposit rate. The insignificance of financial allocation efficiency and financial activity as policy tools in the battle against inflation could be explained by the (well documented) surplus liquidity issues experienced by the African banking sector. Social implications – This paper helps in providing monetary policy options in the fight against soaring consumer prices. By keeping inflationary pressures on food prices in check, sustained campaigns involving strikes, demonstrations, marches, rallies and political crises that seriously disrupt economic performance could be mitigated. Originality/value – As far as we have perused, there is yet no study that assesses monetary policy options that could be relevant in addressing the dramatic surge in the price of consumer commodities.

Suggested Citation

  • Simplice A, Asongu, 2012. "Fighting consumer price inflation in Africa. What do dynamics in money, credit, efficiency and size tell us?," MPRA Paper 41553, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:41553
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    Cited by:

    1. Asongu Simplice, 2014. "Fresh Patterns of Liberalization, Bank Return and Return Uncertainty in Africa," Working Papers of the African Governance and Development Institute. 14/004, African Governance and Development Institute..
    2. Asongu, Simplice & Nguena, Christian, 2014. "Equitable and Sustainable Development of Foreign Land Acquisitions: what have we learnt on policy syndromes and implications?," MPRA Paper 56808, University Library of Munich, Germany.
    3. Simplice A. Asongu, 2015. "Law,Finance, Economic Growth and Welfare: Why Does Legal Origin Matter?," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 7(2), pages 30-55, July.
    4. Simplice Anutechia Asongu & Christian Lambert Nguena, 2014. "Equitable and sustainable development of foreign land acquisitions: Lessons, Policies and Implications," AAYE Policy Research Working Paper Series 14_013, Association of African Young Economists, revised Aug 2014.
    5. Simplice A. Asongu, 2014. "The “knowledge economy”–finance nexus in SSA and MENA countries," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 7(2), pages 200-213, June.
    6. Asongu, Simplice & Nwachukwu, Jacinta C., 2015. "Finance and Inclusive Human Development: Evidence from Africa," MPRA Paper 71787, University Library of Munich, Germany.
    7. Simplice A. Asongu, 2014. "Finance and Democracy in Africa," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 6(3), pages 92-116, October.
    8. Asongu, Simplice & Anyanwu, John & Tchamyou, Vanessa, 2016. "Information sharing and conditional financial development in Africa," MPRA Paper 74653, University Library of Munich, Germany.
    9. Simplice Asongu, 2014. "How Would Monetary Policy Matter In The Proposed African Monetary Unions? Evidence From Output And Prices," The African Finance Journal, Africagrowth Institute, vol. 16(2), pages 34-63.
    10. Serhat Yuksel & Mustafa Ozsari, 2016. "Impact of Consumer Loans on Inflation and Current Account Deficit: A Toda Yamamoto Causality Test for Turkey," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 2(2), pages 3-14, December.
    11. Simplice Asongu, 2016. "New empirics of monetary policy dynamics: evidence from the CFA franc zones," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 7(2), pages 164-204, June.
    12. Simplice A. Asongu, 2015. "Institutional benchmarking of foreign aid effectiveness in Africa," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 42(6), pages 543-565, June.
    13. NGUENA, Christian L., 2012. "Pro Growth Monetary Policy in Africa: Monetarist versus Keynesian Approach," MPRA Paper 49410, University Library of Munich, Germany, revised 31 Aug 2013.
    14. Simplice A. Asongu & John C. Anyanwu & Vanessa S. Tchamyou, 2019. "Technology-driven information sharing and conditional financial development in Africa," Information Technology for Development, Taylor & Francis Journals, vol. 25(4), pages 630-659, October.
    15. Asongu, Simplice & Nwachukwu, Jacinta, 2015. "Drivers of FDI in Fast Growing Developing Countries: Evidence from Bundling and Unbundling Governance," MPRA Paper 67294, University Library of Munich, Germany.
    16. Oasis Kodila-Tedika & Asongu Simplice, 2016. "State fragility, rent seeking and lobbying: evidence from African data," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 43(10), pages 1016-1030, October.
    17. Simplice Asongu & Oasis Kodila-Tedika, 2015. "Conditional determinants of FDI in fast emerging economies: an instrumental quantile regression approach," Working Papers of the African Governance and Development Institute. 15/003, African Governance and Development Institute..
    18. Asongu, Simplice A., 2014. "A note on the long-run neutrality of monetary policy: new empirics," European Economic Letters, European Economics Letters Group, vol. 3(1), pages 1-6.
    19. Asongu Simplice, 2013. "Does Money Matter in Africa? New Empirics on Long- and Short-run Effects of Monetary Policy on Output and Prices," Working Papers of the African Governance and Development Institute. 13/005, African Governance and Development Institute..
    20. Simplice A. Asongu, 2013. "How Would Population Growth Affect Investment in the Future? Asymmetric Panel Causality Evidence for Africa," African Development Review, African Development Bank, vol. 25(1), pages 14-29, March.
    21. Nguena, Christian Lambert, 2010. "Rethinking Pro-Growth Monetary Policy in Africa: Monetarist versus Keynesian Approach," MPRA Paper 52100, University Library of Munich, Germany, revised 08 Dec 2013.
    22. Simplice A Asongu, 2014. "On the substitution of institutions and finance in investment," Economics Bulletin, AccessEcon, vol. 34(3), pages 1557-1574.
    23. Nguena Christian Lambert & Tsafack Nanfosso Roger, 2014. "On the Sensitivity of Banking Activity Shocks: Evidence from the CEMAC Sub-region," Economics Bulletin, AccessEcon, vol. 34(1), pages 354-372.
    24. Christian Lambert Nguena & Roger Tsafack Nanfosso, 2013. "Facteurs Microeconomiques du Deficit de Financement des PME au Cameroun," AAYE Policy Research Working Paper Series 13_004, Association of African Young Economists, revised Nov 2013.

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    More about this item

    Keywords

    Banks; Inflation; Development; Panel; Africa;
    All these keywords.

    JEL classification:

    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General

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