Money growth and inflation rate: evidence from Angola from 2014 to 2023

Resumo

This paper investigates the impact of the money supply on inflation in Angola from 2014 to 2023, by assessing the effect of money supply on inflation in Angola and to examine how the effects of money growth on inflation rate has evolved over time. For this purpose, we use money aggregate M2, and national price index data published by Banco Nacional de Angola (BNA, hereafter), that it is analysed using Vector Autoregressive model (VARM, hereafter) and rolling VARM. The results suggest that firstly, money supply does affect inflation in Angola and its impact is positive, in other words, a 1% increase in money supply leads inflation to rise by 0.11%.  Thus, the greater the money supply the greater the inflation. Secondly, money supply and past inflation may explain nearly 67% of current inflation in Angola. Third, the time-varying elasticity of inflation rate with respect to money supply has changed dramatically over time and its value per period is mostly positive, confirming that throughout the period money growth affect constantly inflation. These findings have considerable implications for the role of monetary policy in the short term to control inflation rate in Angola once it reinforces the views to BNA deliver a discretionary monetary policy during the periods of increase in government activity.