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The Nexus Between Fiscal Deficit and Inflation in Mozambique: ARDL Model Approach

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  • Khalilahmad Mussa Bahadur

Abstract

This study investigates the relationship between fiscal deficits and inflation in Mozambique from January 2017 to December 2023 using an Autoregressive Distributed Lag (ARDL) model. Monthly data on inflation, money supply, and interest rates were collected from official sources, while annual fiscal deficit and public debt figures were converted into monthly values. The Phillips-Perron (PP) test was applied to assess stationarity, the ARDL bounds test examined long-run relationships, and the Error Correction Model (ECM) captured short-run dynamics. The results confirm a significant long-run relationship between fiscal deficits and inflation, with a 1% increase in the fiscal deficit leading to a 0.0089% rise in inflation. Money supply strongly influences inflation, while public debt exhibits a negative long-run relationship. These findings highlight the importance of coordinated fiscal and monetary policies to ensure macroeconomic stability in Mozambique.

Suggested Citation

  • Khalilahmad Mussa Bahadur, 2025. "The Nexus Between Fiscal Deficit and Inflation in Mozambique: ARDL Model Approach," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 17(5), pages 1-13, May.
    • Handle: RePEc:ibn:ijefaa:v:17:y:2025:i:5:p:13
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    References listed on IDEAS

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    1. Michael D. Bordo & Mickey D. Levy, 2020. "Do Enlarged Fiscal Deficits Cause Inflation: The Historical Record," NBER Working Papers 28195, National Bureau of Economic Research, Inc.
    2. Kurayish Ssebulime & Bbaale Edward, 2019. "Budget deficit and inflation nexus in Uganda 1980–2016: a cointegration and error correction modeling approach," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-14, December.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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