Non‐linear Effects of Inflation on Economic Growth in the Democratic Republic of the Congo

• Published date: 01 December 2020
• Author: Erick Kitenge,Paul Woodburne,Boniface Yemba
• Date: 01 December 2020
• DOI: http://doi.org/10.1111/saje.12249

South African Journal of Economics Vol. 88:4 December 2020

doi: 10.1111/saje.12249

536

© 2020 Economic Society of South Africa

NON-LINEAR EFFECTS OF INFLATION ON ECONOMIC

GROWTH IN THE DEMOCRATIC REPUBLIC OF THE

CONGO

BONIFACE YEMBA†, ERICK KITENGE‡,* AND PAUL WOODBURNE§

Abstract

This paper presents one of the first empirical studies that employ the regression kink model with an

unknown threshold to estimate the turning point in the relationship between inflation and economic

growth. To deal with the asymptotic non-normality of the regression function, we use a numerical

delta bootstrap method and inference methods in the construction of confidence intervals for the

regression function. Our estimated threshold suggests that, in the Democratic Republic of Congo,

inflation rates lower than 17.2% would drive economic growth, but any inflation rate beyond that

threshold will harm the growth. The Congolese policymakers should be aware of this threshold in

the implementation of any inflation-targeting policy instruments or strategies.

JEL Classification: E31, O40, C32

Keywords: Threshold inflation, economic growth, regression kink with unknown threshold

1. INTRODUCTION

This paper endogenously determines a statistically significant threshold in the infla-

tion-growth nexus for the Democratic Republic of Congo (DRC). This country has a

long history with high inflations and is one of the most inflationary countries in the Sub-

Saharan-African region and worldwide. In fact, the average inflation rate in the DRC is

448% in the period under investigation (1960-2017). Furthermore, identification of a

consistent inflation threshold for the DRC is even more critical at the moment we are

writing this paper, given that policymakers are planning on moving away from mone-

tary targeting towards the inflation targeting policy. For this reason, the Central Bank

of Congo (BCC) has conducted a research on the subject, but its methodology finds

a non-statistically significant threshold between 4% and 7% that can be misleading.

Therefore, this paper constitutes our contribution to the efforts of Congolese policymak-

ers by estimating a statistically significant inflation threshold, provided that the ability to

monitor price fluctuations would guarantee price stability which enhances the economic

efficiency and then, promotes the economic growth.

* Corresponding author: Assistant Professor of Economics, College of Business, Central State

University, 1400 Brush Row Road, Wilberforce, OH, USA. E-mail: ekitenge@centralstate.edu

† Division of Finance, Economics, and International Business, Lewis College of Business, Marshall

University

‡ College of Business, Central State University

§ Department of Economics, Clarion University of Pennsylvania

South African Journal

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