Anh D. M. Nguyen, Mr. Jemma Dridi, Ms. Filiz D Unsal, and Mr. Oral Williams
The perception that inflation dynamics in Sub-Saharan Africa (SSA) are driven by supply shocks
implies a limited role for monetary policy in influencing inflation in the short run. SSA’s rapid
growth, its integration with the global economy, changes in the policy frameworks, among others,
in the last decade suggest that the drivers of inflation may have changed. We quantitatively
analyze inflation dynamics in SSA using a Global VAR model, which incorporates trade and
financial linkages among economies, as well as the role of regional and global demand and
inflationary spillovers. We find that in the past 25 years, the main drivers of inflation have been
domestic supply shocks and shocks to exchange rate and monetary variables; but that, in recent
years, the contribution of these shocks to inflation has fallen. Domestic demand pressures as well
as global shocks, and particularly shocks to output, however, have played a larger role in driving
inflation over the last decade. We also show that country characteristics matter—the extent of oil
and food imports, vulnerability to weather shocks, economic importance of agriculture, trade
openness and policy regime, among others, help in explaining the role of shocks.
This paper examines the causes of deflation in Hong Kong SAR, exploring whether it reflects a prolonged process of adjustment to cyclical shocks or whether it results from price equalization pressures arising from structural integration with mainland China. To gauge the relative importance of these factors, the paper provides both an econometric and a qualitative analysis of the price dynamics between Hong Kong SAR and Shenzhen, a neighboring city in mainland China. It finds that the role of price equalization as a source of deflation is minor. Deflation in Hong Kong SAR is best explained by successive cyclical shocks which have been amplified by balance-sheet and wealth effects.
The macroeconomic policy response in India after the North Atlantic financial crisis (NAFC) was rapid. The overshooting of the stimulus and its gradual withdrawal sowed seeds for inflationary and BoP pressures and growth slowdown, then exacerbated by domestic policy bottlenecks and volatility in international financial markets during mid-2013. Appropriate domestic oil prices and fiscal consolidation will contribute to the recovery of private sector investment. Fiscal consolidation would also facilitate a reduction in inflation, which would moderate gold imports and favorably impact real exchange rate and current account deficit.
The analysis of China’s impacts on the 44 SSA countries reveals that: (i) after joining the
WTO in 2001, China has started to impact significantly on SSA growth: one-percent increase
in China’s GDP per capita leads to 0.02 percent increase on the SSA’s GDP per capita; (ii)
oil and investment-goods exporters benefit more from China’s growth; (iii) compared to
China’s consumption, its investment growth acts as a more important channel in influencing
SSA; (iv) exports to China, highly linked to China’s growth, is an important indicator for
SSA’s exports. Our results call for SSA countries to be well prepared for China’s rebalancing
given its growing economic influence and to proactively search a sustainable way to
continuously enhance productivity.