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

Simplice Asongu

MPRA Paper from University Library of Munich, Germany

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 E5 O55 (search for similar items in EconPapers)
Date: 2012-09-18, Revised 2013-04-14
New Economics Papers: this item is included in nep-afr, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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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:pra:mprapa:46424

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