Does External Debt Drive Inflation in Sudan? Evidence from Symmetric and Asymmetric ARDL approaches

Mesbah Sharaf and Abdelhalem Shahen ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study aims to examine the symmetric and asymmetric impact of external debt on inflation in Sudan from 1970 to 2020 within a multivariate framework by including money supply and the nominal effective exchange rate as additional inflation determinants. We utilize an Auto Regressive Distributed Lag (ARDL) model to examine the symmetric impact of external debt on inflation, while the asymmetric impact is examined using a nonlinear Auto Regressive Distributed Lag (NARDL) model. The existence of a long-run relationship between inflation and external debt is tested using the bounds-testing approach to cointegration, and a vector error-correction model is estimated to determine the short parameters of equilibrium dynamics. The linear ARDL model results show that external debt has no statistically significant impact on inflation in the long run. On the contrary, the results of the NARDL model show that positive and negative external debt shocks statistically affect inflation in the long run. The estimated long-run elasticity coefficients of both the linear and nonlinear ARDL models reveal that the domestic money supply has a statistically significant positive impact on inflation. In contrast, the nominal effective exchange rate has a statistically significant negative impact on inflation. The reliance on symmetric analysis may not be sufficient to uncover the existence of a linkage between external debt and inflation. Proper external debt management is crucial to control inflation rates in Sudan.

Keywords: External Debt; Exchange rate; Inflation; Money supply; NARDL; Sudan (search for similar items in EconPapers)
JEL-codes: E31 E52 F34 O24 (search for similar items in EconPapers)
Date: 2023-03-01
New Economics Papers: this item is included in nep-ara, nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Does external debt drive inflation in Sudan: evidence from symmetric and asymmetric ARDL approaches (2023)
Journal Article: Does external debt drive inflation in Sudan: evidence from symmetric and asymmetric ARDL approaches (2023)
Working Paper: Does External Debt Drive Inflation in Sudan? Evidence from Symmetric and Asymmetric ARDL approaches (2023)
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