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Inflation, output and unemployment trade-offs in Sub-Saharan Africa countries

Ahiadorme, Johnson Worlanyo (2020): Inflation, output and unemployment trade-offs in Sub-Saharan Africa countries.

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Abstract

This paper studies the behaviour of inflation, output and unemployment in Sub-Saharan Africa (SSA) countries. In a heterogenous panel data analysis, the short run estimates show significant inflation - unemployment and output - unemployment relationships, consistent with the predictions of the Phillips curve and Okun’s law. In the long run however, the Okun’s law coefficient declines greatly and turns positive while the Phillips curve phenomenon gravitates towards the New Keynesian Phillips Curve (NKPC) but with a negative relationship. The short-term behaviour of inflation, output and unemployment can be attributed to economic slackness reflecting subdued demand while the long run outturns may be explained by supply shocks reflecting shifts in productivity. In the country specific analysis, I find that the coefficients on both past and expected inflation are positive and significant in all countries. However, the coefficients on expected inflation dominate the coefficients on past inflation, suggesting that inflation dynamics in the sub region are more forward looking in line with the theoretical predictions of the NKPC.

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