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Public Debt and Inflation: Empirical Evidence from Ghana

Author

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  • Akingbade U. Aimola
  • Nicholas M. Odhiambo

Abstract

This paper investigates the impact of public debt on inflation in Ghana using annual data during the period 1983-2018. The study uses the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration and an error correction model to examine this linkage. The cointegrating regression results reveal evidence of a stable long-run relationship between inflation and the explanatory variables in the presence of a structural break. The findings also show a positive and significant impact of public debt on inflation. These results were found to hold, irrespective of whether the regression was conducted in the short run or the long run. The study confirms the presence of the inflationary effects of public debt in Ghana. The government should, therefore, be prudent when considering increases in public debt to minimise volatility in inflation and its associated risks to the economy.

Suggested Citation

  • Akingbade U. Aimola & Nicholas M. Odhiambo, 2021. "Public Debt and Inflation: Empirical Evidence from Ghana," Working Papers 2106, African Economic and Social Research Institute (AESRI).
    • Handle: RePEc:afa:wpaper:2106
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    Keywords

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    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

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