Assessment of multiple structural breaks in inflation and their effect on macroeconomic stability in East Africa

Purpose Recent global shocks have disrupted East Africa’s inflation landscape, potentially altering relationships between inflation and other macroeconomic variables. This study tests the presence of multiple structural breaks in inflation and how they affect their relationship with other macroeconomic variables. Design/methodology/approach Using panel data for four East African Community (EAC) countries from 2012Q1 to 2023Q4, this study tests for structural breaks by allowing for interactive fixed effects in panel data models. Findings This study reveals two structural breaks that significantly influence inflation dynamics, despite not changing the relationship between inflation and other variables. The article recommends that central banks integrate break detection into their forecasting tools. In addition, harmonized monitoring systems and contingency frameworks are needed in the East African Monetary Union (EAMU) to maintain shared policy coordination effectiveness while ensuring national flexibility in response to asymmetric shocks. Originality/value To the best of our knowledge, this study is among the few to examine multiple structural breaks and their effect on macroeconomic stability using panel data for East African countries.