Unemployment and monetary policy: Evidence from Sub-Saharan Africa

In Sub-Sahara Africa, few studies have been conducted on how unemployment affects monetary policy in each country. Even an aggregate study of the phenomenon in Sub-Sahara Africa is near absent despite a high level of unemployment in the region. To investigate the empirical link between unemployment and monetary policy, the study employs a sample of 37 countries in Sub-Sahara Africa for the period 2011-2017. Data were obtained from the World Bank and International Monetary Fund database. Using the difference Generalized Method of Moments model, the study determines how monetary policy (using the lending rate as proxy) responds to unemployment, employer's condition and total labour force in Sub-Sahara Africa. We found that monetary policy indirectly responds to employer's condition, but the positive effect of the total labour force on monetary policy is relatively higher than total unemployment as a percentage of the labour force in the region. The study concludes that a linkage exists between monetary policy and employment indicators in Sub-Sahara Africa and therefore, made some policy recommendations.