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

Abstract

This paper examines the impact of inflation on economic growth in a panel of 13 African countries in the franc zone (CFA) and BRICS. Contrary to previous studies that focus on a linear relationship, the present study uses the Panel Smooth Transition Regression model to examine this relationship. The results of this method strongly support the idea that the relationship between inflation and growth is non-linear with a threshold of 3.17% in the Central African Economic and Monetary Union (CAEMU), 11.30% for the West African Economic and Monetary Union (WAEMU) and 7.04% for the BRICS. In particular, the study indicates that the 2% target set by the BCEAO for WAEMU countries can be revised upwards without adversely affecting growth. For the BRICS, they should avoid inflation rates above 7%.

Keywords: inflation; growth; monetary policy; threshold effects; dynamic panel; WAEMU; CAEMU; BRICS.

DOI: 10.7176/JESD/10-2-07