IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v303y2024ics0360544224016359.html
   My bibliography  Save this article

Re-validating the Phillips Curve hypothesis in Africa and the role of oil prices: A mixed-frequency approach

Author

Listed:
  • Ogbonna, Ahamuefula E.
  • Farag, Markos
  • Akintande, Olalekan J.
  • Yaya, OlaOluwa S.
  • Olubusoye, Olusanya E.

Abstract

This paper investigates the relationship between unemployment and inflation in 29 African economies by re-examining the Phillips Curve hypothesis and evaluating the role of global oil prices in predicting inflation. Existing studies often use uniform-frequency variables, which can lead to biased results by omitting information from high-frequency series. We employ a mixed data sampling regression model to analyze inflation in selected African countries by regressing monthly inflation rates on annual unemployment rates and daily oil price returns. Our findings show that the Phillips Curve hypothesis holds in a few countries across Central Africa (Cameroon, the Central African Republic, Chad, and Republic of the Congo), East Africa (Rwanda), North Africa (Algeria), Southern Africa (Botswana and Malawi), and West Africa (Burkina Faso and Mauritania). In the other countries, the hypothesis does not hold, potentially indicating a predominance of cost-push inflation. Our analysis demonstrates that global oil prices impact inflation differently across these countries. Additionally, daily oil price data significantly enhance inflation forecasting compared to monthly data. Incorporating additional economic variables, such as exchange rates and interest rates, further improves forecast accuracy. We recommend targeted monetary policies to mitigate the impacts of oil price fluctuations and unemployment on inflation.

Suggested Citation

  • Ogbonna, Ahamuefula E. & Farag, Markos & Akintande, Olalekan J. & Yaya, OlaOluwa S. & Olubusoye, Olusanya E., 2024. "Re-validating the Phillips Curve hypothesis in Africa and the role of oil prices: A mixed-frequency approach," Energy, Elsevier, vol. 303(C).
    • Handle: RePEc:eee:energy:v:303:y:2024:i:c:s0360544224016359
    DOI: 10.1016/j.energy.2024.131862
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544224016359
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.energy.2024.131862?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Moeti Damane & Imtiaz Sifat, 2020. "Testing for a common Phillips curve in common monetary area of Southern Africa," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(6), pages 1401-1436, June.
    2. Salisu, Afees A. & Ogbonna, Ahamuefula E., 2019. "Another look at the energy-growth nexus: New insights from MIDAS regressions," Energy, Elsevier, vol. 174(C), pages 69-84.
    3. Farag Markos & Zaki Chahir, 2021. "Price and Income Elasticities of Natural Gas Demand in Egypt: A Bound Test Approach," Review of Middle East Economics and Finance, De Gruyter, vol. 17(1), pages 27-55, April.
    4. repec:hal:journl:hal-02279027 is not listed on IDEAS
    5. Michael McLeay & Silvana Tenreyro, 2020. "Optimal Inflation and the Identification of the Phillips Curve," NBER Macroeconomics Annual, University of Chicago Press, vol. 34(1), pages 199-255.
    6. Laurence Ball & Sandeep Mazumder, 2021. "A Phillips curve for the euro area," International Finance, Wiley Blackwell, vol. 24(1), pages 2-17, April.
    7. LeBlanc, Michael & Chinn, Menzie David, 2004. "Do High Oil Prices Presage Inflation? The Evidence from G-5 Countries," Santa Cruz Department of Economics, Working Paper Series qt4wt4m7hg, Department of Economics, UC Santa Cruz.
    8. López-Villavicencio, Antonia & Pourroy, Marc, 2019. "Inflation target and (a)symmetries in the oil price pass-through to inflation," Energy Economics, Elsevier, vol. 80(C), pages 860-875.
    9. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    10. Lutz Kilian & Logan T. Lewis, 2011. "Does the Fed Respond to Oil Price Shocks?," Economic Journal, Royal Economic Society, vol. 121(555), pages 1047-1072, September.
    11. Ziramba, Emmanuel, 2010. "Price and income elasticities of crude oil import demand in South Africa: A cointegration analysis," Energy Policy, Elsevier, vol. 38(12), pages 7844-7849, December.
    12. Patricia Renou-Maissant, 2019. "Is Oil Price Still Driving Inflation?," The Energy Journal, , vol. 40(6), pages 199-220, November.
    13. Leandro Medina & Mr. Andrew W Jonelis & Mehmet Cangul, 2017. "The Informal Economy in Sub-Saharan Africa: Size and Determinants," IMF Working Papers 2017/156, International Monetary Fund.
    14. Fiess, Norbert M. & Fugazza, Marco & Maloney, William F., 2010. "Informal self-employment and macroeconomic fluctuations," Journal of Development Economics, Elsevier, vol. 91(2), pages 211-226, March.
    15. Kevin S. Nell, 2006. "Structural Change And Nonlinearities In A Phillips Curve Model For South Africa," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 600-617, October.
    16. Olivier Coibion & Yuriy Gorodnichenko, 2015. "Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts," American Economic Review, American Economic Association, vol. 105(8), pages 2644-2678, August.
    17. Clark, Todd E. & West, Kenneth D., 2007. "Approximately normal tests for equal predictive accuracy in nested models," Journal of Econometrics, Elsevier, vol. 138(1), pages 291-311, May.
    18. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    19. Wu, Man-Hwa & Ni, Yen-Sen, 2011. "The effects of oil prices on inflation, interest rates and money," Energy, Elsevier, vol. 36(7), pages 4158-4164.
    20. Olivier Coibion & Yuriy Gorodnichenko & Rupal Kamdar, 2018. "The Formation of Expectations, Inflation, and the Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 56(4), pages 1447-1491, December.
    21. Moses Tule & Afees Salisu & Charles Chiemeke, 2020. "Improving Nigeria’s Inflation Forecast with Oil Price: The Role of Estimators," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(1), pages 191-229, March.
    22. Patricia Renou-Maissant, 2019. "Is Oil Price Still Driving Inflation?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    23. Yaya O. S. & Akintande O. J. & Ogbonna A. E. & Adegoke H. M., 2019. "Cpi Inflation In Africa: Fractional Persistence, Mean Reversion And Nonlinearity," Statistics in Transition New Series, Polish Statistical Association, vol. 20(3), pages 119-132, September.
    24. Sek, Siok Kun, 2017. "Impact of oil price changes on domestic price inflation at disaggregated levels: Evidence from linear and nonlinear ARDL modeling," Energy, Elsevier, vol. 130(C), pages 204-217.
    25. Ghysels, Eric & Santa-Clara, Pedro & Valkanov, Rossen, 2004. "The MIDAS Touch: Mixed Data Sampling Regression Models," University of California at Los Angeles, Anderson Graduate School of Management qt9mf223rs, Anderson Graduate School of Management, UCLA.
    26. Salisu, Afees A. & Ademuyiwa, Idris & Isah, Kazeem O., 2018. "Revisiting the forecasting accuracy of Phillips curve: The role of oil price," Energy Economics, Elsevier, vol. 70(C), pages 334-356.
    27. Robert J. Gordon, 2011. "The History of the Phillips Curve: Consensus and Bifurcation," Economica, London School of Economics and Political Science, vol. 78(309), pages 10-50, January.
    28. Franz Xaver Zobl & Martin Ertl, 2021. "The Condemned Live Longer – New Evidence of the New Keynesian Phillips Curve in Central and Eastern Europe," Open Economies Review, Springer, vol. 32(4), pages 671-699, September.
    29. Nusair, Salah A. & Olson, Dennis, 2019. "The effects of oil price shocks on Asian exchange rates: Evidence from quantile regression analysis," Energy Economics, Elsevier, vol. 78(C), pages 44-63.
    30. Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 25(Win), pages 2-11.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas Hasenzagl & Filippo Pellegrino & Lucrezia Reichlin & Giovanni Ricco, 2022. "A Model of the Fed's View on Inflation," The Review of Economics and Statistics, MIT Press, vol. 104(4), pages 686-704, October.
    2. Manuel M. F. Martins & Fabio Verona, 2024. "Forecasting Inflation with the New Keynesian Phillips Curve: Frequencies Matter," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 86(4), pages 811-832, August.
    3. Clements, Michael P., 2024. "Do professional forecasters believe in the Phillips curve?," International Journal of Forecasting, Elsevier, vol. 40(3), pages 1238-1254.
    4. Kazeem O. Isah & Abdulkader C. Mahomedy & Elias A. Udeaja & Ojo J. Adelakun & Yusuf Yakubu & Danmecca Musa, 2022. "Revisiting the accuracy of inflation forecasts in Nigeria: The oil price–exchange rate–asymmetry perspectives," South African Journal of Economics, Economic Society of South Africa, vol. 90(3), pages 329-348, September.
    5. Aharon, David Y. & Azman Aziz, Mukhriz Izraf & Kallir, Ido, 2023. "Oil price shocks and inflation: A cross-national examination in the ASEAN5+3 countries," Resources Policy, Elsevier, vol. 82(C).
    6. Bańbura, Marta & Bobeica, Elena, 2023. "Does the Phillips curve help to forecast euro area inflation?," International Journal of Forecasting, Elsevier, vol. 39(1), pages 364-390.
    7. Degiannakis, Stavros & Filis, George, 2023. "Oil price assumptions for macroeconomic policy," Energy Economics, Elsevier, vol. 117(C).
    8. Afees A. Salisu & Raymond Swaray & Hadiza Sa'id, 2021. "Improving forecasting accuracy of the Phillips curve in OECD countries: The role of commodity prices," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2946-2975, April.
    9. Ángelo Gutiérrez-Daza, 2024. "Business Cycles when Consumers Learn by Shopping," Working Papers 2024-12, Banco de México.
    10. Sarwar, Muhammad Nadeem & Hussain, Hamid & Maqbool, Muhammad Bilal, 2020. "Pass through effects of oil price on food and non-food prices in Pakistan: A nonlinear ARDL approach," Resources Policy, Elsevier, vol. 69(C).
    11. Antonio J., Garzón & Luis A., Hierro, 2022. "Inflation, oil prices and exchange rates. The Euro’s dampening effect," Journal of Policy Modeling, Elsevier, vol. 44(1), pages 130-146.
    12. Liu, Donghui & Meng, Lingjie & Wang, Yudong, 2021. "The asymmetric effects of oil price changes on China’s exports: New evidence from a nonlinear autoregressive distributed lag model," Journal of Asian Economics, Elsevier, vol. 77(C).
    13. Huang, Xuan & Liu, Xueyong, 2022. "The time-frequency evolution of multidimensional relations between global oil prices and China's general price level," Energy, Elsevier, vol. 244(PA).
    14. repec:ecb:ecbdps:202424 is not listed on IDEAS
    15. Adriana Cornea‐Madeira & João Madeira, 2022. "Econometric Analysis of Switching Expectations in UK Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 651-673, June.
    16. Tule, Moses K. & Salisu, Afees A. & Chiemeke, Charles C., 2019. "Can agricultural commodity prices predict Nigeria's inflation?," Journal of Commodity Markets, Elsevier, vol. 16(C).
    17. Ferreira, Diego & Palma, Andreza Aparecida, 2015. "Forecasting Inflation with the Phillips Curve: A Dynamic Model Averaging Approach for Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 69(4), December.
    18. Pablo M. Pincheira & Carlos A. Medel, 2016. "Forecasting with a Random Walk," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(6), pages 539-564, December.
    19. Combes, Jean-Louis & Lesuisse, Pierre, 2022. "Inflation and unemployment, new insights during the EMU accession," International Economics, Elsevier, vol. 172(C), pages 124-142.
    20. repec:zbw:bofrdp:2018_022 is not listed on IDEAS
    21. Todd E. Clark & Michael W. McCracken, 2009. "Combining Forecasts from Nested Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(3), pages 303-329, June.
    22. Pal, Debdatta & Mitra, Subrata Kumar, 2019. "Asymmetric oil price transmission to the purchasing power of the U.S. dollar: A multiple threshold NARDL modelling approach," Resources Policy, Elsevier, vol. 64(C).

    More about this item

    Keywords

    Phillips curve hypothesis; Forecasting; Mixed frequency; Asymmetric effects;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:303:y:2024:i:c:s0360544224016359. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.