Monetary Instability and Economic Growth in Guinea: The Role of Inflation and the Exchange Rate

Abstract

This paper examines the impact of monetary instability on economic growth in Guinea, with particular emphasis on inflation instability and exchange rate volatility. In a context characterized by recurrent macroeconomic imbalances and high vulnerability to external shocks, the study aims to assess the extent to which nominal uncertainty constrains economic performance. The empirical analysis relies on annual data covering the period 1995–2023 and adopts an econometric framework combining conditional volatility models of the GARCH type with an ARDL approach in order to identify both short-run and long-run relationships between economic growth and indicators of monetary instability.

The empirical results provide evidence of a long-run relationship between economic growth, inflation instability, and exchange rate volatility. Specifically, inflation instability and exchange rate volatility exert a negative and statistically significant effect on economic growth in the long run, while their short-run effects appear to be more moderate. The error correction term is negative and statistically significant, indicating a relatively rapid adjustment toward the long-run equilibrium following a monetary shock.

The contribution of this paper lies in the joint analysis of the two dimensions of monetary instability in the Guinean context, which remains underexplored in the empirical literature. The findings highlight the importance of strengthening the credibility of monetary policy and improving macroeconomic coordination in order to support sustainable economic growth in Guinea.

JEL Classification : E31, E52, F31, O55

Paper type : Empirical Research