Currency depreciation and inflationary pressure vis-Ã -vis monetary intervention: perspectives on growth and policy implications

Samson Edo and Eseosa Joy Sowemimo ()
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Eseosa Joy Sowemimo: Department of Economics, University of Benin, UBenin City, Nigeria

Public Sector Economics, 2026, vol. 50, issue 1, 141-158

Abstract: This study investigates the effects of currency depreciation, inflation, and efforts to offset depreciation through foreign exchange intervention in a sample of ten Sub-Saharan African countries considered to have had the worst performing currencies from 1990 to 2023. Using dynamic ordinary least squares and error correction estimation techniques we show that depreciation and inflation have significant negative effects on growth, which cannot be offset by central bank interventions. Gross fixed investment and trade openness help promote growth. Diagnostic tests indicate that the estimates are reliable. They are also robust to the exclusion of several explanatory variables. We find a bidirectional Granger causality between currency depreciation and growth, and strong predictive capacity of the estimated model. These findings provide support for the view that greater exchange rate flexibility does not help promote exports and growth in economies with pronounced structural weaknesses and inefficient macroeconomic policies.

Keywords: currency depreciation; inflation; foreign exchange intervention; economic growth; exchange rates; developing economies; Sub-Saharan African countries (search for similar items in EconPapers)
JEL-codes: E32 E58 F33 F43 F49 O55 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ipf:psejou:v:50:y:2026:i:1:p:141-158

DOI: 10.3326/pse.50.1.7

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