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Public Debt and Inflation Dynamics: Empirical Evidence from Zimbabwe

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  • Talknice Saungweme

  • Nicholas M. Odhiambo

Abstract

The study seeks to empirically test the hypothesis that public debt has a significant influence on inflation in Zimbabwe, covering the period 1980-2020. The study was motivated by recent trends in public debt and domestic inflation in Zimbabwe, and the need to guide debt-inflation related policy. These latest trends have started to ring alarming bells, which raises questions on the effectiveness of fiscal and monetary policies in bringing macroeconomic stability in the country. Applying the Autoregressive Distributed Lag (ARDL) bounds testing procedure to cointegration and an error correction mechanism (ECM), expanded by incorporating structural breaks, the study finds evidence in support of positive and significant impact of public debt on inflation dynamics in Zimbabwe, particularly in the long run. Based on the findings, public debt dynamics matter for inflation process in Zimbabwe. That is, fiscal policy can be considered to be an important determinant of the effectiveness of monetary policy in Zimbabwe. Therefore, the government should be mindful of increases in public debt as this was found to be inflationary.

Suggested Citation

  • Talknice Saungweme & Nicholas M. Odhiambo, 2021. "Public Debt and Inflation Dynamics: Empirical Evidence from Zimbabwe," Working Papers 2107, African Economic and Social Research Institute (AESRI).
    • Handle: RePEc:afa:wpaper:2107
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    Cited by:

    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. repec:afa:wpaper:aesriwp07 is not listed on IDEAS
    3. 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.
    4. repec:afa:wpaper:aesriwp25 is not listed on IDEAS
    5. repec:afa:wpaper:aesri-2021-07 is not listed on IDEAS
    6. Francis Kagotho & Lenity Mugendi & Joseph Nzomoi, 2024. "Effect of External Debt on Inflation in Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(8), pages 3959-3969, August.
    7. Aimola Akingbade U. & Odhiambo Nicholas M., 2022. "Is the effect of public debt on inflation symmetric or asymmetric? Evidence from the Gambia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 8(1), pages 41-57, June.
    8. Talknice Saungweme & Nicholas M. Odhiambo, 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.
    9. 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).
    10. Ali Zeb & Niu Shuhai & Obaid Ullah, 2024. "Inflationary dynamics under fiscal and monetary asymmetries: a nonlinear investigation in Pakistan," SN Business & Economics, Springer, vol. 4(12), pages 1-30, December.
    11. repec:afa:wpaper:aesri-2021-25 is not listed on IDEAS
    12. 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.
    13. Chowdhury, Mohammad Ashraful Ferdous & Prince, Ehsanur Rauf & Shoyeb, Mohammad & Abdullah, Mohammad, 2024. "The threshold effect of institutional quality on sovereign debt and economic stability," Journal of Policy Modeling, Elsevier, vol. 46(1), pages 39-59.
    14. Van Bon Nguyen, 2022. "Does governance matter for the public debt–inflation relationship in developed countries? Panel quantile regression approach," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 1153-1173, December.

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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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