Investigating the policy implications of financial technology shocks on macroeconomic stability : evidence from emerging African economies

The disruptive impact of financial technology (fintech) on banks and the entire macroeconomic condition motivated this study. We investigate fintechs‘ dynamic impact on macroeconomic stability and their policy response in a panel of five emerging African economies for the period 2002-2018. The principal component analytical (PCA) technique revealed that instability among emerging Africa is more susceptible to fiscal and trade deficits with Nigeria and Algeria being the worst hit. Moreover, the forecast error variance decomposition and impulse response of the structural vector autoregressive (SVAR) estimation technique found that variability in macroeconomic instability were more susceptible to shocks from automated teller machine (ATM) adoption. Under the assumption of fixed exchange rate regime with perfect/relative capital mobility, fiscal policy was effective to restore a steady state when contemporaneous shocks from fintech threatens the economy both in the short and long-run. Although monetary policy was explosive in the short-run, it becomes effective to fintech shock in the long-run under a freely floating exchange rate assumption. The study therefore recommends a fiscal-monetary policy mix under a float-managed exchange rate system with relative capital mobility when contemporaneous shocks from fintech hit the economy.