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Inflation and Economic Performance in the CFA Franc Zone: Transmission Channels and Threshold Effects

Inflation and Economic Performance in the CFA Franc Zone: Transmission Channels and Threshold Effects

Komlan Fiodendji, Bernadette Dia Kamgnia, Nasser Ary Tanimoune
Copyright: © 2014 |Pages: 20
ISBN13: 9781466643291|ISBN10: 1466643293|EISBN13: 9781466643307
DOI: 10.4018/978-1-4666-4329-1.ch002
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MLA

Fiodendji, Komlan, et al. "Inflation and Economic Performance in the CFA Franc Zone: Transmission Channels and Threshold Effects." Econometric Methods for Analyzing Economic Development, edited by Peter V. Schaeffer and Eugene Kouassi, IGI Global, 2014, pp. 10-29. https://doi.org/10.4018/978-1-4666-4329-1.ch002

APA

Fiodendji, K., Kamgnia, B. D., & Tanimoune, N. A. (2014). Inflation and Economic Performance in the CFA Franc Zone: Transmission Channels and Threshold Effects. In P. Schaeffer & E. Kouassi (Eds.), Econometric Methods for Analyzing Economic Development (pp. 10-29). IGI Global. https://doi.org/10.4018/978-1-4666-4329-1.ch002

Chicago

Fiodendji, Komlan, Bernadette Dia Kamgnia, and Nasser Ary Tanimoune. "Inflation and Economic Performance in the CFA Franc Zone: Transmission Channels and Threshold Effects." In Econometric Methods for Analyzing Economic Development, edited by Peter V. Schaeffer and Eugene Kouassi, 10-29. Hershey, PA: IGI Global, 2014. https://doi.org/10.4018/978-1-4666-4329-1.ch002

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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.

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