Correcting inflation with financial dynamic fundamentals: which adjustments matter in Africa?

Simplice Asongu

No 13/003, Working Papers of the African Governance and Development Institute. from African Governance and Development Institute.

Abstract: This paper assesses the adjustment of inflation with financial dynamic fundamentals of money (financial depth), credit (financial activity) and efficiency. Three main findings are established. (1) There are significant long-run relationships between inflation and the fundamentals. (2) The error correction mechanism is stable in all specifications but in case of any disequilibrium, only financial depth is significant in adjusting inflation to the long-run relationship. (3) In the long-run, short-term adjustments in the ability of banks to transform money into credit do not matter in correcting inflation. This is most probably due to surplus liquidity issues. Policy implications are discussed.

Keywords: Excess money; inflation; credit; Africa (search for similar items in EconPapers)
JEL-codes: E31 E51 O55 (search for similar items in EconPapers)
Pages: 25
Date: 2013-04-14
New Economics Papers: this item is included in nep-afr, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

Forthcoming in the Journal of African Business

Downloads: (external link)
http://www.afridev.org/RePEc/agd/agd-wpaper/Correc ... matter-in-Africa.pdf Revised version, 2013 (application/pdf)

Related works:
Journal Article: Correcting Inflation with Financial Dynamic Fundamentals: Which Adjustments Matter in Africa? (2014)
Working Paper: Correcting inflation with financial dynamic fundamentals: which adjustments matter in Africa? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:agd:wpaper:13/003

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