Empirical analysis of exchange rate volatility as an explanatory factor of inflation in Angola
Keywords:
Angola, Inflation, Exchange Rate, Volatility.Abstract
This article analyzed the exchange rate volatility as an explanatory factor for inflation in Angola during the period 2002-2022. In this sense, we used an empirical analysis and, through econometric techniques, we constructed different economic models, established the relationships between the variables and estimated them using the ordinary least squares method. This study is part of the modern empirical literature on the relationship between the exchange rate and inflation, first analyzed by Dornbusch (1987). Using Granger causality tests, the empirical results revealed: (1) the existence of a unilateral causality in the sense of consumer price index (CPI) Granger causes exchange rate (TXC); (2) the existence of a unilateral causality in the sense of exports (EXP) Granger causes net foreign reserves (RLX). According to our empirical results, the exchange rate in Angola explains the consumer price index (CPI) to the tune of 71%, i.e. 71% of the variations found in the CPI in Angola in the short term were explained by the volatility of the exchange rate and the remaining 29% by other factors.
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