Inflation rate of 14–16% is fair for the sub-Saharan African dollarization

This study contributes to the literature by extending the argument of the theoretical underpinning of dollarization. While the earlier studies have identified inflation, inter alia, as the important determinant of dollarization, it is silent about the exact inflation rate that is conducive for the dollarized economies. Using threshold autoregressive model, results show that inflation rate of 14–16% is favorable for the economies. Any further increment, beyond this level, would magnify the incidence of dollarization and vice-versa. Results are consistent to some robustness checks. Policy implications were suggested based upon the results estimated.