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Inflation, interest rate and economic growth nexuses in SACU countries

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  • Taderera, Christie
  • Runganga, Raynold
  • Mhaka, Simbarashe
  • Mishi, Syden

Abstract

Various theories ascertain that there is a positive relationship between inflation and interest rate. Developed and developing economies are still in search of an optimum inflation rate that increases economic growth. The SACU members has recorded low growths levels over the past years coupled with low inflation rates. This study examines the relationship between inflation rate, interest rate and economic growth in Southern African Customs Union (SACU) countries. Panel data for SACU countries covering the period 1991 to 2018 was analysed using Pooled Mean Group (PMG) estimators which are Panel Autoregressive Distributed Lag (ARDL) model, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) to enable isolating short and long run effects and for robustness.The results of the study show that inflation has a positive impact on economic growth while lending rate has a negative impact on growth in the long run. These results imply that policymakers should allow a high sustainable inflation rate in order to promote economic growth while interest rate can be used as a monetary policy instrument to achieve the desired inflation rate that will affect economic growth positively.

Suggested Citation

  • Taderera, Christie & Runganga, Raynold & Mhaka, Simbarashe & Mishi, Syden, 2021. "Inflation, interest rate and economic growth nexuses in SACU countries," MPRA Paper 105419, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105419
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; Interest rate; Economic growth; Southern African Customs Union;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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