The symmetric and asymmetric effect of foreign currency reserves, and money supply on inflation in The Gambia, a linear and nonlinear ARDL perspective

Mohammad O.J. Rashdan, Abed Allah Abu Wahdan and Foday Joof

Afro-Asian Journal of Finance and Accounting, 2025, vol. 15, issue 3, 364-382

Abstract: This paper investigated the symmetric and asymmetric impact of international reserves (FCR) and money supply (M2) on inflation in The Gambia. The paper employed the Nonlinear-ARDL (NARDL) for the asymmetric and the ARDL for the symmetric effect, using monthly data (2005M1-2019M12). The NARDL revealed that a positive shock in foreign reserves is detrimental to inflation, while a negative shock promotes price stability. Similarly, an increase in money supply triggers price instability, while a decline in M2 was found to have a neutral effect. The ARDL results showed that FCR positively affects inflation in the long term but negatively in the short run. However, M2 has a positive relationship with inflation both in the short and long run. The findings indicate that policymakers in The Gambia are faced with a trade-off of either accumulating reserves to protect the economy against external shocks or maintaining price stability.

Keywords: foreign currency reserve; money supply; inflation; the Gambia; linear; nonlinear ARDL. (search for similar items in EconPapers)
Date: 2025
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