Monetary Policy in High Inflation Open Economies: Further Evidence from sub-Saharan African Countries

Abstract

The paper examines effectiveness of monetary policy for seven high-inflation countries in sub-Saharan Africa. The study employs GARCH estimation techniques to establish that monetary policy has no long-run real effects on consumption, investment, and the current account balance in high inflation countries. The findings are consistent with theory and empirics even after allowing for inflation volatility not directly observable, obtained through GARCH estimate. With the inclusion of the inflation volatility series as exogenous variable in the VAR system, this study supports the long run neutrality hypothesis of monetary policy on the real variables in open economies in sub-Saharan Africa.