Macroeconomic Determinants of Inflation: Evidence from the Republic of Guinea

Abstract

This paper examines the macroeconomic determinants of inflation in Guinea, for the period between 1990-2015 using co-integration analyses. The main purpose of the research is to investigate whether money supply, gross domestic per capita and exchange rate have a significant impact on inflation during the period under consideration. The stationary properties of all the variables were checked and established. All the variables were found to be integrated at first difference. Johansen co-integration approach showed that there is both long and short-term relationship between the variables. The study shows that in the long-term, when money supply increases by 1% inflation also rise by 0.18%, the exchange rate has a positive effect on inflation. 1% increase in the exchange rate will also cause inflation to increase by 0.007%. However, GDP per capita influenced inflation negatively; as a result, 1% increase in GDP per capita will cause inflation to decline by 0.08%.

Keywords: Guinea, Inflation, Economy growth, and Cointegration