How Do Shock-Dependent Phillips Curve Dynamics Shape Economic Growth and Exchange Rate Behavior: Evidence from Some African Countries

Abstract In this paper, we study the impact of a shock-dependent Phillips Curve on growth and exchange rate dynamics in six African countries from 1980 to 2024. In contrast to the standard Phillips Curve, this model permits the inflation–output trade-off to depend on the type of structural shocks, allowing for nonlinear and state-contingent relations in the macroeconomy. The novel empirical toolkit developed for this analysis utilizes Panel SVAR, Conditional Inverse Rosenblatt (CIR)-based impulse responses, and Panel Generalized Linear Models (GLM) to systematically explore short- and medium-term transmission mechanisms across diverse economies. The results exhibit considerable cross-country heterogeneity. The shock-driven Phillips Curve has a statistically significant negative impact on growth in South Africa, Nigeria, Egypt, and Algeria, with the influence on Ethiopia and Uganda being weak/insignificant, an indication of structural rigidities and feeble monetary transmission. Exchange rate responses tend to be temporary and differ across regimes, being stronger in more open and financially integrated countries. Impulse response analysis shows that inflation shocks transitorily raise output and exchange rate volatility, but these effects vanish as predicted by the long-run neutrality. These results suggest that macroeconomic relationships in African countries are nonlinear, heterogeneous, and state-dependent, which have implications for the design of monetary policy and the conduct of macroeconomic stabilization. JEL Classification: C33; E31; E32; E52; F31; O55