Macroeconomic shocks and fluctuations in African economies

- We estimate a Bayesian monetary DSGE model for ten African economies.
- External shocks are the dominant drivers of fluctuations in Africa.
- External debt, exchange rate, foreign interest and commodity prices are dominant.
- Domestic inflation and money supply shocks are dominant among internal shocks.

We estimate a monetary DSGE model to examine the role of macroeconomic shocks in generating fluctuations in ten African countries. The model is estimated with the Bayesian technique using twelve macroeconomic variables. The findings indicate that both the internal and external shocks significantly influence output fluctuations in African economies. Over a four quarter horizon, internal shocks are dominant and over eight to sixteen quarter horizons, external shocks are dominant. Among the external shocks, external debt, exchange rate, foreign interest rate and commodity price shocks account for a large part of output variations in African economies. Money supply and productivity shocks are the most important internal shocks contributing to output fluctuations in African countries.