Openness and the Effects of Monetary Policy in Africa

Ekpo, Akpan H. and Effiong, Ekpeno L. (2017): Openness and the Effects of Monetary Policy in Africa.

Abstract

This paper investigates the relationship between a country's openness to trade and the effects of monetary policy on output growth and inflation in Africa. Theory suggest that monetary policy effectiveness is influenced by the degree of openness to international trade. We apply standard panel data techniques to annual data from the period 1990-2015 for a panel of 37 African countries, and find a strong significant relationship between openness and monetary policy effectiveness in Africa. The empirical results indicate that the effects of monetary policy on output growth and inflation increases and decreases respectively with higher levels of trade openness. Therefore, monetary authorities should place emphasis on the level of openness when designing their choice of optimal monetary policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Openness; Monetary Policy; Africa.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

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