The asymmetric effect of the stabilisation policies on the general price level in the Southern African Common Monetary Area

Abstract For decades, ensuring price stability has been a significant concern for the monetary authorities in emerging economies. Even though monetary policy is essential for keeping the price level stable, it is still exposed to shocks that can challenge economic objectives. As a result, the main objective of this study is to examine the asymmetric effects of stabilisation policies on the general price in the Southern African Common Monetary Area (CMA) between 1990 and 2022. The study uses panel analysis and panel nonlinear autoregressive distributed lags techniques to analyse the effects of exchange rate, money supply, government revenue, fiscal deficit, interest rate and government spending on the general price level. The results show that positive and negative changes in exchange rate, government revenue, fiscal deficit and interest rate significantly affect the general price level in the long run. However, only negative changes in interest rates and positive changes in fiscal deficit affect the price level in the long run. The long-term effect of government spending and money supply is insignificant. Furthermore, this study reports that there is a long-run asymmetric effect of the exchange rate on the general price level. The study suggests that contractive fiscal policy should be applied to avoid upward pressure on the general price level in the CMA, and a monetary policy approach should be applied to effectively control exchange rate fluctuations. Therefore, a policy mix aimed at price stability should be implemented in the CMA.