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Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries

Received: 7 May 2020     Accepted: 25 May 2020     Published: 17 June 2020
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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.

Published in Journal of Finance and Accounting (Volume 8, Issue 3)
DOI 10.11648/j.jfa.20200803.17
Page(s) 158-164
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Financial Conditions Index, Inflation, GDP Per Capita

References
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Cite This Article
  • APA Style

    Ogbonna Udochukwu Godfrey, Ejem Chukwu Agwu. (2020). Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries. Journal of Finance and Accounting, 8(3), 158-164. https://doi.org/10.11648/j.jfa.20200803.17

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    ACS Style

    Ogbonna Udochukwu Godfrey; Ejem Chukwu Agwu. Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries. J. Finance Account. 2020, 8(3), 158-164. doi: 10.11648/j.jfa.20200803.17

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    AMA Style

    Ogbonna Udochukwu Godfrey, Ejem Chukwu Agwu. Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries. J Finance Account. 2020;8(3):158-164. doi: 10.11648/j.jfa.20200803.17

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  • @article{10.11648/j.jfa.20200803.17,
      author = {Ogbonna Udochukwu Godfrey and Ejem Chukwu Agwu},
      title = {Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries},
      journal = {Journal of Finance and Accounting},
      volume = {8},
      number = {3},
      pages = {158-164},
      doi = {10.11648/j.jfa.20200803.17},
      url = {https://doi.org/10.11648/j.jfa.20200803.17},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20200803.17},
      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.},
     year = {2020}
    }
    

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  • TY  - JOUR
    T1  - Economic Performance and Financial Conditions Index Nexus: Evidence from Selected Sub-Saharan African Countries
    AU  - Ogbonna Udochukwu Godfrey
    AU  - Ejem Chukwu Agwu
    Y1  - 2020/06/17
    PY  - 2020
    N1  - https://doi.org/10.11648/j.jfa.20200803.17
    DO  - 10.11648/j.jfa.20200803.17
    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
    SP  - 158
    EP  - 164
    PB  - Science Publishing Group
    SN  - 2330-7323
    UR  - https://doi.org/10.11648/j.jfa.20200803.17
    AB  - 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.
    VL  - 8
    IS  - 3
    ER  - 

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Author Information
  • Department of Management Science, Rhema University, Aba, Nigeria

  • Department of Banking and Finance, Abia State University, Uturu, Nigeria

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