Is the relationship between inflation and financial development symmetric or asymmetric? new evidence from Sudan based on NARDL

Yusra Ismail and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: This study highlights the impact of inflation on financial development, using NARDL approach and the annual data available allow us to cover a period of 56 years. Sudan is used as a case study. The relationship between inflation and financial development remains an important issue in both theoretical and empirical literature because of its important implications on macroeconomic stabilization policies. The importance of the study comes from examining a developing country which is witnessing an economic deterioration generally and a hyper-inflation crisis that marked it as the second highest inflation rate in Africa in the 1st quarter of 2019. We test whether the relationship between the variables is symmetrical or asymmetrical in both short run and long run. Applying the autoregressive distributed lags model (ARDL) and Nonlinear ARDL approaches proposed by Pesaran et al. (2001) and Shin et al. (2014) respectively, results confirm the presence of long run equilibrium relationship between inflation and financial development. Our findings tend to suggest that the long run relationship is symmetrical, while evidence is in support of asymmetrical short- run trade-off between the variables. Two main contributions are added to the previous literature. First, it applies a recent methodology that is Nonlinear ARDL (NARDL). Secondly it presents a new evidence from one of the high indebted poor countries-HIPC (Sudan) using data from 1961 to 2017.

Keywords: Inflation; financial development; non-linear ARDL (search for similar items in EconPapers)
JEL-codes: C58 E44 (search for similar items in EconPapers)
Date: 2019-06-24
New Economics Papers: this item is included in nep-ara, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/94694/1/MPRA_paper_94694.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94694

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().