Macroeconomic Stability: Drivers of Inflation in Angola

Abstract

This study examines the drivers of inflation in Angola over the period 2015–2024 (120 observations), using an autoregressive distributed lag (ARDL) model. By integrating key macroeconomic variables such as the consumer price index (CPI), trade-weighted inflation (TCPI), nominal exchange rate (EXR), and money supply (M2), the research investigates both short-run dynamics and long-run equilibrium relationships. The analysis applies unit root tests and ARDL bounds testing to confirm cointegration among the variables and employs Granger causality tests to explore directional influences. Results indicate that inflation in Angola exhibits strong persistence with significant adjustment toward long-run equilibrium, while external shocks, particularly exchange rate fluctuations, play a critical role in influencing price levels. Monetary policy transmission and fiscal discipline appear to have limited immediate impact, suggesting that structural factors and reliance on oil revenues are major contributors to inflationary pressures. Based on these findings, the study recommends improvements in foreign exchange management, enhancement of domestic production capacity, diversification of the economy, and tighter fiscal controls.

Keywords: Inflation, ARDL model, monetary policy, Angola

DOI: 10.7176/JESD/16-2-03

Publication date: March 30th 2025