Redefining the Monetary Policy Transmission Mechanism in African Economies under Global Uncertainty

This study provides a robust structural analysis of monetary policy transmission in African economies amid rising global and regional uncertainties. Using a comprehensive three-panel dataset encompassing 38 African countries, we employ a Panel Vector Autoregression (PVAR) methodology to evaluate the dynamic effects of monetary policy on inflation, economic growth, and exchange rates. First, inflation responsiveness to monetary policy shocks is modest and overshadowed by inflation persistence. Economic growth reactions to monetary instruments are discernible but short-lived, with credit supply playing a more influential role than interest rates. Exchange rate movements exhibit heightened sensitivity to monetary shocks, particularly under conditions of elevated uncertainty. Essentially, the interactive uncertainty model demonstrates a significant lessening of policy effectiveness during high-uncertainty periods. This study underscores the necessity for policymakers to deepen financial markets, enhance policy redibility, and bolster macroprudential frameworks to effectively navigate the increasingly uncertain global landscape and achieve sustainable economic stability across Africa.