In search of inflation limits for financial sector development in ECOWAS and SADC regions : a panel smooth transition analysis

This study investigates a comparative study on the threshold effects of inflation on financial sector development (FSD) between the Economic Community of West African States (ECOWAS) and the Southern Africa Development Community (SADC) for the period 1980-2011. Using a novel panel smooth transition regression, our results suggest evidence of the existence of a robust single threshold of inflation in both regions. Particularly, it indicates 17.9% and 14.5% of inflation for ECOWAS and SADC, respectively, suggesting that inflation above these thresholds presents detrimental effects for financial development in both regions. The study therefore concludes that price stability policies with inflation targeting framework should be the primary objective in monetary policy since high inflation is economically costly to financial development in the two regions.