Disinflation Costs in Africa: The Role of Policy Design and Monetary Institutions

This paper investigates the determinants of the sacrifice ratio in Africa, with a focus on the ECOWAS region, using a newly constructed panel of disinflation episodes covering 54 countries over the period 1960–2024. The empirical analysis relies on panel estimations, including OLS with clustered standard errors, FGLS, and 2SLS‐IV approaches, to account for heterogeneity, panel‐specific heteroskedasticity, and potential endogeneity in key policy variables. The results provide robust evidence that monetary institutional frameworks and disinflation design play a central role in shaping disinflation costs. In particular, monetary targeting and exchange‐rate pegs are consistently associated with higher sacrifice ratios, suggesting that rigid nominal anchors amplify output losses during disinflation. By contrast, monetary union membership is associated with lower sacrifice ratios, which may reflect credibility gains, policy coordination, and more stable inflation expectations within integrated monetary frameworks. Policy‐related characteristics of disinflation, such as speed, magnitude, and duration, also significantly influence the sacrifice ratio, highlighting the importance of policy design in shaping adjustment costs. Overall, the findings highlight the central role of institutional monetary frameworks and policy design in shaping the inflation‐output trade‐off in Africa and provide new empirical evidence to inform debates on monetary policy and regional integration in Africa.