Estimating the Effects of China’s Output and Monetary Policy Shocks on African Economies

Given the increasing economic ties between African countries and China, this study investigates the effects of China’s output and monetary policy shocks on African countries’ macroeconomic performance for the period 1995q1 to 2021q4. The study formulates and estimates a dynamic stochastic general equilibrium (DSGE) model with the Bayesian technique. The results show that China’s output and monetary policy shocks impact African countries’ macroeconomic performance. The findings indicate that China’s output and monetary policy shocks affect output, inflation and exchange rates in African economies through the trade and financial channels. However, the results show that China’s output shocks have greater impacts on output and inflation while China’s monetary policy shocks have stronger impacts on exchange rate in African countries. The study recommends that African countries should deepen their intra-regional trade, promote economic diversification and monitor China’s business cycles and policies so as to reduce their vulnerabilities to China’s macroeconomic shocks.