Arcade Ndoricimpa

Threshold effects of inflation on economic growth in selected African regional economic communities: Evidence from a dynamic panel threshold modeling

Arcade Ndoricimpa

The objective of this study is to estimate inflation threshold and examine its impact on the inflation-growth nexus in selected African regional economic communities. While a number of empirical studies exist in this area for developing countries, they bundle up countries from Asia, Africa and Latin America which do not have the same inflation experiences. This study therefore focuses on Africa. However, since African regional groupings themselves have different inflation experiences, non-linearity in the relationship between inflation and growth is explored within each grouping separately. The study uses dynamic panel threshold modeling recently suggested by Kremer et al. (2013) which extends the non-dynamic panel threshold model of Hansen (1999) and the cross-sectional threshold model of Caner and Hansen (2004). The results indicate that the estimated inflation threshold is different across the regional economic communities. Nonlinearity in inflation-growth nexus seems to hold in CEMAC, COMESA and SADC while it is questioned in WAEMU and WAMZ. For CEMAC, COMESA and SADC, the findings indicate that inflation above the threshold is harmful to growth. Some correlations are established in this study but further analysis is needed to suggest a policy.

Inflation, output growth and their uncertainties in South Africa: Empirical evidence from an asymmetric multivariate GARCH-M model

Arcade Ndoricimpa

The study examines the relationships between inflation uncertainty and output growth uncertainty, and analyzes their effects on the level of inflation and output growth in South Africa. An asymmetric multivariate GARCH-M model suggested by Grier et al. (2004) is applied. The findings suggest that while uncertainty about growth is detrimental to output growth inflation uncertainty is not. The findings further reveal that Cukierman and Meltzer (1986) hypothesis of a positive impact of inflation uncertainty on the level of inflation is supported and there exists a negative impact of output growth uncertainty on inflation. No association could be found between inflation uncertainty and output growth uncertainty. The findings imply that output growth and its uncertainty should not be treated separately as it is usually suggested by business cycle models. In addition, both output growth uncertainty and inflation uncertainty should be considered as part of the determinants of output growth in South Africa.