Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries
Journal of Finance and Accounting
Volume 8, Issue 3, May 2020, Pages: 158-164
Received: May 7, 2020; Accepted: May 25, 2020; Published: Jun. 17, 2020
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Authors
Ogbonna Udochukwu Godfrey, Department of Management Science, Rhema University, Aba, Nigeria
Ejem Chukwu Agwu, Department of Banking and Finance, Abia State University, Uturu, Nigeria
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Abstract
The purpose this study is to construct a financial conditions index for six sub-Saharan African Countries; namely, Nigeria, South Africa, Namibia, Mauritius, Kenya and Ghana, within the dynamic panel data framework using annual data covering from 2009 to 2018. The variables included in the construction of the index are treasury bills rate, real effective exchange rate, interest rate spread, credit to private sector ratio to Gross Domestic Product and value of stocks traded. The weights attached to these variables in the construction of the financial conditions index are estimated using the dynamic fixed effects coefficients, while the predictive power of the constructed index is evaluated within the dynamic panel General Method Moment framework. The output of analysis found that while real GDP per capita growth is not significantly related to real effective exchange rate, interest rate spread and credit to private sector ratio to Gross Domestic Product, it is significantly related to treasury bills rate and value of stocks traded. Thus, the effectiveness of monetary policy in the selected sub-Saharan countries depends only on money market and capital market conditions. Also results show that in Namibia, Ghana, Kenya and Nigeria, the financial conditions have been tighter than the prevailing macroeconomic conditions, while South Africa’s financial conditions have been looser than its prevailing macroeconomic conditions. However, Mauritius’ financial conditions have been neither tighter nor looser than its prevailing macroeconomic conditions. In the light of the above, the researchers suggest that the focus of monetary policy in the selected sub-Saharan countries has been to reduce inflation.
Keywords
Financial Conditions Index, Inflation, GDP Per Capita
To cite this article
Ogbonna Udochukwu Godfrey, Ejem Chukwu Agwu, Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries, Journal of Finance and Accounting. Vol. 8, No. 3, 2020, pp. 158-164. doi: 10.11648/j.jfa.20200803.17
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Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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