Assessment of the Relationship between Central Bank Interest Rate, Inflation and Growth in Central Africa Countries with the New Leading-Lagging Method

Abstract This paper assesses the causal relationship between central bank interest rate, inflation and GDP growth in Central African countries using a new leading-lagging method over the period 1990-2019. The results show a short-term relationship between the three variables, with strong evidence of unidirectional non-linear causality running from the interest rate to inflation for the region as a whole. However, analysis by the country reveals some divergences on the causality between variables despite the fact that all six countries benefitted from the central bank monetary policy at one time or another, either with respect to GDP or INF. The empirical implications of these results are the relative independence in central bank decisions and the absence of synchronization between region’s economies.