Monetary Transmission Capacity and Inflation Dynamics in Sub-Saharan Africa

Inflation remains a persistent macroeconomic challenge in Sub-Saharan Africa, where monetary policy transmission is often weakened by shallow financial systems, fiscal dominance, exchange rate pass-through, and limited central bank credibility. This paper examines how monetary and institutional conditions are associated with inflation outcomes across 31 Sub-Saharan African economies between 1995 and 2022. It proposes a Monetary Transmission Capacity Framework, which argues that monetary policy effectiveness depends partly on financial depth and central bank credibility. Using a complete-case panel of 434 country-year observations, the paper estimates fixed-effects models with Driscoll-Kraay standard errors to account for cross-sectional dependence, heteroskedasticity, and serial correlation. The results show that money supply growth and exchange-rate depreciation are positively associated with inflation, while financial depth, central bank independence and fiscal balance are negatively associated with inflation. A lagged The squared inflation term provides evidence consistent with non-linear inflation persistence. The findings suggest that inflation management in Sub-Saharan Africa depends not only on monetary policy stance but also on the structural and institutional capacity through which policy is transmitted. The results should be interpreted as conditional associations rather than causal estimates, given potential endogeneity between inflation, monetary aggregates, and institutional variables.