Inflation Targeting and Inflation Performance in Africa: Evidence Using a Synthetic Control Approach

Since the 1990s, inflation targeting (IT) has been adopted by a growing number of developing countries, including in Africa, where South Africa, Ghana, and Uganda have implemented the monetary framework to promote macroeconomic stability. Despite extensive literature on the topic, little is known about the impact of IT on the performance of African economies. We fill this gap by applying the synthetic control method over the period 1990-2020 to estimate the IT effect from a counterfactual situation based on a comparison group. We find robust evidence that the IT framework has not significantly reduced inflation in any of the three countries. We then explore the underlying mechanisms and argue that weak Central bank independence and the frequent supply shocks to which African economies are exposed make it difficult for Central banks to achieve their inflation targets.