Public debt and inflation dynamics: Empirical evidence from Zimbabwe

Talknice Saungweme and Nicholas Odhiambo

No 28343, Working Papers from University of South Africa, Department of Economics

Abstract: The study seeks to empirically test the hypothesis that public debt has a significant influenceon inflation in Zimbabwe, covering the period 1980-2020. The study was motivated by recenttrends in public debt and domestic inflation in Zimbabwe, and the need to guide debt-inflationrelated policy. These latest trends have started to ring alarming bells, which raises questionson the effectiveness of fiscal and monetary policies in bringing macroeconomic stability in thecountry. Applying the Autoregressive Distributed Lag (ARDL) bounds testing procedure tocointegration and an error correction mechanism (ECM), expanded by incorporatingstructural breaks, the study finds evidence in support of positive and significant impact ofpublic debt on inflation dynamics in Zimbabwe, particularly in the long run. Based on thefindings, public debt dynamics matter for inflation process in Zimbabwe. That is, fiscal policycan be considered to be an important determinant of the effectiveness of monetary policy inZimbabwe. Therefore, the government should be mindful of increases in public debt as this was found to be inflationary.

Keywords: ARDL; inflation; public debt; Zimbabwe (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (14)

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