The impact of energy prices on inflation and economic growth in Mozambique: A wavelet approach and OLS estimator

Abstract

AbstractThe paper is using the Continuous Wavelet Transform (CWT) and the OLS estimator to examine the relationship between energy prices (coal and gas), inflation and economic growth in Mozambique. Coal and gas are the primary commodity and source of revenue for the country. The research uses quarterly data from 2001 to 2022. Among other results, we found evidence of high coherence between macroeconomic variables (inflation and real GDP growth rate) and energy prices (thermal coal and natural gas prices) only for the frequency intervals between 1.5 and 4 years (short term). The results hold even after controlling for the real GDP growth and exchange rate; we concluded that only in the short term (1.5–4 years), there is high coherence between energy prices and inflation in the time interval between 2004 and 2012. This finding indicates no relation between energy prices, inflation and economic growth in Mozambique. Furthermore, the OLS estimates substantiate the wavelet result, showing no impact. In this context, we can conclude that there is probably a ‘Dutch disease’ or ‘resource curse’ that negates the positive effects of exploiting these resources on short‐ and long‐term economic growth.