IDEAS home Printed from https://ideas.repec.org/a/ris/ecoint/0914.html
   My bibliography  Save this article

Does Public Debt Granger-Cause Inflation in Tanzania? A Multivariate Analysis

Author

Listed:
  • Saungweme, Talknice

    (Department of Economics, University of South Africa, Pretoria, South Africa)

  • Odhiambo, Nicholas M.

    (Department of Economics, University of South Africa, Pretoria, South Africa NICHOLAS M. ODHIAMBO)

Abstract

The optimal balance between fiscal and monetary policy in achieving price stability has been contested in literature. In the main, however, it is widely recognised that whether public debts are financed in a monetary way or otherwise, the choice of policy action affects the effectiveness of monetary policy in ensuring price stability. This study contributes to the debate by testing the dynamic causal relationship between public debt and inflation in Tanzania covering the period 1970-2020. The study applies the ARDL bounds testing technique to cointegration and the ECM-based Granger-causality test to explore this relationship. In order to address the omission-of-variable bias, which has been the major methodological deficiency detected in some previous studies, two monetary variables, namely money supply and interest rate, were added as intermittent variables alongside public debt and inflation. The findings from this study show that there is a consistent long-run cointegrating relationship between public debt, inflation, money supply and interest rate in Tanzania. However, the results fail to find evidence of causality between public debt and inflation in Tanzania, irrespective of whether the causality is estimated in the short run or in the long run. The findings of this study, therefore, show that Tanzania’s current debt is not inflationary; hence, policymakers may continue to pursue the desirable fiscal policies necessary for the country’s long-term optimal growth path. Può il debito pubblico Granger-causare l’inflazione in Tanzania? Un’analisi multivariata Nella letteratura è generalmente riconosciuto che se il debito pubblico è finanziato in forma monetaria o altro, la scelta delle azioni politiche influisce sull’efficacia della politica monetaria nell’assicurare la stabilità dei prezzi. In questo studio viene applicata la tecnica ARDL alla cointegrazione e il test ECM di Granger-causalità. Per risolvere il problema dell’omissione di variabili sono state aggiunte due variabili monetarie, la domanda di moneta e il tasso di interesse. I risultati di questo studio mostrano che nel lungo periodo c’è una relazione costante di cointegrazione tra debito pubblico, inflazione, domanda di moneta e tasso di interesse in Tanzania. Però, i risultati non riscontrano evidenza della causalità tra debito pubblico e inflazione in Tanzania, indipendentemente se la causalità è stimata nel breve o nel lungo periodo. Quindi i risultati di questo studio mostrano che il debito pubblico della Tanzania non causa inflazione.

Suggested Citation

  • Saungweme, Talknice & Odhiambo, Nicholas M., 2022. "Does Public Debt Granger-Cause Inflation in Tanzania? A Multivariate Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 75(1), pages 75-100.
    • Handle: RePEc:ris:ecoint:0914
    as

    Download full text from publisher

    File URL: http://iei1946.it/upload/rivista_articoli/allegati/432_saungwemeodhiamboricfinal.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, vol. 79(C), pages 129-150.
    2. Granger, C. W. J., 1988. "Causality, cointegration, and control," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 551-559.
    3. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
    4. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    5. M S Mohanty, 2012. "Fiscal policy, public debt and monetary policy in EMEs: anoverview," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal policy, public debt and monetary policy in emerging market economies, volume 67, pages 1-9, Bank for International Settlements.
    6. Niemann, Stefan, 2011. "Dynamic monetary–fiscal interactions and the role of monetary conservatism," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 234-247.
    7. W. Michael Cox, 1985. "The behavior of Treasury securities; monthly, 1942-1984," Working Papers 8501, Federal Reserve Bank of Dallas.
    8. Nicholas M. Odhiambo, 2022. "Foreign Direct Investment and Economic Growth in Kenya: An Empirical Investigation," International Journal of Public Administration, Taylor & Francis Journals, vol. 45(8), pages 620-631, June.
    9. Fernando M. Martin, 2013. "Government Policy In Monetary Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 185-217, February.
    10. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    11. Stefan Niemann & Paul Pichler & Gerhard Sorger, 2013. "Central Bank Independence And The Monetary Instrument Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 1031-1055, August.
    12. Hafer, R W & Hein, Scott E, 1988. "Further Evidence on the Relationship between Federal Government Debt and Inflation," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 239-251, April.
    13. Aimola, Akingbade U & Odhiambo, Nicholas M, 2021. "Public debt and inflation: Empirical evidence from Ghana," Working Papers 27063, University of South Africa, Department of Economics.
    14. Stefan Niemann & Paul Pichler & Gerhard Sorger, 2013. "Central Bank Independence And The Monetary Instrument Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1031-1055, August.
    15. Odhiambo, Nicholas M., 2009. "Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach," Energy Policy, Elsevier, vol. 37(2), pages 617-622, February.
    16. Barnhart, Scott W. & Darrat, Ali F., 1989. "Federal deficits and money growth in the United States : A vector autoregressive analysis," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 137-149, March.
    17. Michael Cox, W., 1985. "The behavior of treasury securities monthly, 1942-1984," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 227-250, September.
    18. Saungweme Talknice & Odhiambo Nicholas M., 2021. "Public debt and inflation dynamics: Empirical evidence from Zimbabwe," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 14-30, December.
    19. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    20. Burdekin, Richard C. K. & Wohar, Mark E., 1990. "Monetary institutions, budget deficits and inflation : Empirical results for eight countries," European Journal of Political Economy, Elsevier, vol. 6(4), pages 531-551.
    21. Goohoon Kwon & Lavern McFarlane & Wayne Robinson, 2009. "Public Debt, Money Supply, and Inflation: A Cross-Country Study," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 476-515, August.
    22. Yemane Wolde-Rufael, 2008. "Budget deficits, money and inflation:the case of Ethiopia," Journal of Developing Areas, Tennessee State University, College of Business, vol. 42(1), pages 183-199, September.
    23. Narayan, Paresh Kumar & Smyth, Russell, 2009. "Multivariate granger causality between electricity consumption, exports and GDP: Evidence from a panel of Middle Eastern countries," Energy Policy, Elsevier, vol. 37(1), pages 229-236, January.
    24. Barnhart, Scott W. & Darrat, Ali F., 1988. "Budget deficits, money growth and causality: Further OECD evidence," Journal of International Money and Finance, Elsevier, vol. 7(2), pages 231-242, June.
    25. Duncan Holtom, 2005. "Reconsidering the power of the IFIs: Tanzania & the world bank, 1978-1985," Review of African Political Economy, Taylor & Francis Journals, vol. 32(106), pages 549-568, December.
    26. Maureen Were & Lekinyi Mollel, 2020. "Public debt sustainability and debt dynamics: The case of Tanzania," WIDER Working Paper Series wp-2020-112, World Institute for Development Economic Research (UNU-WIDER).
    27. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    28. Longinus Rutasitara, 2004. "Exchange rate regimes and inflation in Tanzania," Working Papers 138, African Economic Research Consortium, Research Department.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Talknice Saungweme & Nicholas M. Odhiambo, "undated". "Does Public Debt Granger-Cause Inflation In Tanzania? A Multivariate Analysis," Working Papers AESRI06, African Economic and Social Research Institute (AESRI).
    2. Saungweme, Talknice & Odhiambo, Nicholas M., 2022. "Does Public Debt Granger-Cause Inflation in Tanzania? A Multivariate Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 75(1), pages 75-100.
    3. T. Saungweme & N.M. Odhiambo, 2021. "Does Public Debt Granger-Cause Inflation In Tanzania? A Multivariate Analysis," Working Papers AESRI-2021-25, African Economic and Social Research Institute (AESRI), revised Dec 2022.
    4. Saungweme, Talknice & Odhiambo, Nicholas M., 2022. "Does Public Debt Granger-Cause Inflation in Tanzania? A Multivariate Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 75(1), pages 75-100.
    5. Saungweme, Talknice & Odhiambo, Nicholas M, 2021. "Does public debt granger-cause inflation? A multivariate analysis," Working Papers 28342, University of South Africa, Department of Economics.
    6. Saungweme Talknice & Odhiambo Nicholas M., 2021. "Public debt and inflation dynamics: Empirical evidence from Zimbabwe," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 14-30, December.
    7. Saungweme Talknice & Odhiambo Nicholas M., 2021. "Public debt and inflation dynamics: Empirical evidence from Zimbabwe," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 14-30, December.
    8. Talknice Saungweme & Nicholas M. Odhiambo, "undated". "Public Debt And Inflation Dynamics: Empirical Evidence From Zimbabwe," Working Papers AESRI05, African Economic and Social Research Institute (AESRI).
    9. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    10. T. Saungweme & N.M. Odhiambo, 2021. "Public Debt and Inflation Dynamics: Empirical Evidence from Zimbabwe," Working Papers AESRI-2021-07, African Economic and Social Research Institute (AESRI), revised Oct 2021.
    11. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, vol. 79(C), pages 129-150.
    12. Donato Masciandaro & Davide Romelli, 2019. "Behavioral Monetary Policymaking: Economics, Political Economy and Psychology," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 9, pages 285-329, World Scientific Publishing Co. Pte. Ltd..
    13. Saungweme Talknice & Odhiambo Nicholas M., 2021. "Public debt and inflation dynamics: Empirical evidence from Zimbabwe," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 14-30, December.
    14. Miller, David S., 2016. "Commitment versus discretion in a political economy model of fiscal and monetary policy interaction," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 17-29.
    15. Masciandaro, Donato & Romelli, Davide, 2015. "Ups and downs of central bank independence from the Great Inflation to the Great Recession: theory, institutions and empirics," Financial History Review, Cambridge University Press, vol. 22(3), pages 259-289, December.
    16. Fernando M. Martin, 2016. "The Value of Constraints on Discretionary Government Policy," Working Papers 2016-19, Federal Reserve Bank of St. Louis.
    17. Fernando Martin, 2019. "How to Starve the Beast: Fiscal and Monetary Policy Rules," 2019 Meeting Papers 1181, Society for Economic Dynamics.
    18. Tang, Chor Foon & Shahbaz, Muhammad & Arouri, Mohamed, 2013. "Re-investigating the electricity consumption and economic growth nexus in Portugal," Energy Policy, Elsevier, vol. 62(C), pages 1515-1524.
    19. Payne, James E., 2010. "A survey of the electricity consumption-growth literature," Applied Energy, Elsevier, vol. 87(3), pages 723-731, March.
    20. Donato Masciandaro & Davide Romelli, 2018. "To Be or not to Be a Euro Country? The Behavioural Political Economics of Currency Unions," BAFFI CAREFIN Working Papers 1883, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    More about this item

    Keywords

    Public Debt; Inflation; ARDL; Granger-Causality; Tanzania;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:ecoint:0914. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Angela Procopio (email available below). General contact details of provider: https://edirc.repec.org/data/cacogit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.