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Inflation in Sierra Leone: An Empirical Analysis of the Impact of Interest Rate on Price Level Changes

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  • Ibrahim Abdulhamid Danlami
  • Mohamad Helmi Bin Hidthiir
  • Sallahuddin Hassan

Abstract

t This research intends to investigate the impact of interest rate on inflation in Sierra Leone. The research used of Autoregressive Distributed Lag model (ARDL) on time series Data, for the period 1970 – 2016. The results show that interest rate is inflationary in both the short-run and long-run as its positively and significantly influence inflation in the two periods which is in conformity with the arguments of the fiscal policy supporters but contrary to the arguments of the monetary policy supporters. The findings, of the study, are limited to the 1970 – 2016-time series data of Sierra Leone used as well as the econometric method of data analysis adopted – ARDL. The research’s findings imply that interest rate in Sierra Leone is inflationary. Increase in the rate of interest will lead to an increase in the inflation rate. Therefore interest rates should be adjusted with caution, and it also implies that fiscal policy will be very effective in converting inflation in the country. The research attempted to investigate the nature of the effect of interest rate on inflation. As it could be inflationary (as claimed by fiscalist) or disinflationary (as claimed by monetarist) which the empirical results accord the arguments of the fiscal policy supporters in both the short-run and long-run having a positive influence on inflation significantly.

Suggested Citation

  • Ibrahim Abdulhamid Danlami & Mohamad Helmi Bin Hidthiir & Sallahuddin Hassan, 2018. "Inflation in Sierra Leone: An Empirical Analysis of the Impact of Interest Rate on Price Level Changes," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(4), pages 42-49, December.
    • Handle: RePEc:khe:scajes:v:4:y:2018:i:4:p:42-49
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    References listed on IDEAS

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    Cited by:

    1. Ibrahim Abdulhamid Danlami, 2019. "Inflation Persistence in the West African Commonwealth Countries," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(3), pages 80-89, September.
    2. Ibrahim Abdulhamid Danlami, 2020. "Revisiting the West African Commonwealth Countries’ Exchange Rate Pass-Through to Inflation," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(1), pages 70-77, March.

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    More about this item

    Keywords

    ARDL; Fiscal policy; Inflation; Interest rate; Sierra Leone;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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