Inflation and Economic Performance in the CFA Franc Zone

Abstract

This chapter examines the relationship between inflation and economic performance in the CFA franc zone over the period 1991-2009 and studies the mechanism through which inflation affects long-term economic growth. Using a threshold model, the evidence strongly supports the view that the relationship between inflation and economic growth is nonlinear with a unique threshold. The most striking difference between West Africa Economic and Monetary Union (WAEMU) zone and Central African Economic and Monetary Community (CEMAC) zone is that the coefficients of inflation are all significantly negative for all inflation regimes, while for WAEMU zone, the coefficient of inflation is positive for the low and high inflation regimes. Further investigation suggests that for the WAEMU countries, but not for the CEMAC countries, the level of investment is the channel through which inflation nonlinearly affects economic growth. One of the main contributions of this chapter is to enable the policymakers, specifically central bankers in each zone, to concentrate on those policies that keep the target of inflation, which may be helpful for the achievement of sustainable economic growth. Low inflation is also helpful for minimizing the uncertainties in the financial market, which in turn boost the investment in the country.

Inflation-Growth Nexus in the CFA Franc Zone and BRICS: Evidence from Panel Threshold Regression Estimation

“…2017After the descriptive analysis, the results of the statistical inference of the model should be presented, the theoretical aspects of which are clearly presented above. To do this, we use the endogenous threshold determination algorithm provided by Hansen (1999) using the examples of Fiodendji and Evlo (2013) and Fiodendji et al (2014). This is a regression procedure based on the sequential least squares technique on all candidate threshold values until the threshold value is obtained, i.e.…”

Inflation Threshold Levels and Economic Growth in the Franc Zone Countries

“…They consider the following variables: investment to GDP ratio, total exports and imports to GDP ratio, and government expenditures to GDP ratio. Fiodendji, Kamgnia, Tanimoune (2014) examine the relationship between inflation and economic performance in the CFA franc zone over the period 1991-2009 and studied the mechanism through which inflation affects long-term economic growth using a threshold model. These authors find a 6.27 percent threshold, which is below the 8.1 percent found by Combey and Nubukpo (2010) but still above the 3 percent convergence criteria set by the WAEMU.…”