IDEAS home Printed from https://ideas.repec.org/p/afa/wpaper/aesriwp09.html
   My bibliography  Save this paper

Public Debt and Inflation Nexus in Nigeria: An ARDL Bounds Test Approach

Author

Listed:
  • Akingbade U. Aimola
  • Nicholas M. Odhiambo

Abstract

Inflationary tendencies of public debt have been the cause of an unsettling debate among policymakers in Nigeria. Using the autoregressive distributed lag (ARDL) framework, this study attempts to investigate the impact of total public debt on inflation in Nigeria for the period 1983–2018. The cointegrating regression results reveal evidence of a stable long-run relationship among inflation, total public debt, money supply, interest rate, economic growth, trade openness, and private investment in the presence of structural breaks. Empirical results show that the impact of public debt on inflation is statistically insignificant, irrespective of whether the regression was in the short or the long run. Hence, the study concludes that inflation in Nigeria could be driven by other factors other than public debt.

Suggested Citation

  • Akingbade U. Aimola & Nicholas M. Odhiambo, "undated". "Public Debt and Inflation Nexus in Nigeria: An ARDL Bounds Test Approach," Working Papers AESRIWP09, African Economic and Social Research Institute (AESRI).
    • Handle: RePEc:afa:wpaper:aesriwp09
    as

    Download full text from publisher

    File URL: https://aesri.org/RePEc/afa/afa-wpaper/AESRIWP09.pdf
    File Function: Revised version, 2022
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
    2. van Wijnbergen, Sweder & Budina, Nina, 2001. "Inflation Stabilization, Fiscal Deficits, and Public Debt Management in Poland," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 293-309, June.
    3. Majid Taghavi, 2000. "Debt, growth and inflation in large European economies: a vector auto-regression analysis," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 159-173.
    4. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
    5. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
    6. Paul R. Masson & Miguel A. Savastano & Sunil Sharma, 2019. "The Scope for Inflation Targeting in Developing Countries," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 10, pages 331-383, World Scientific Publishing Co. Pte. Ltd..
    7. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    8. Michael Woodford, 1998. "Doing Without Money: Controlling Inflation in a Post-Monetary World," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 173-219, January.
    9. BILDIRICI, Melike & ERSIN, Ozgur Omer, 2007. "Domestic Debt, Inflation And Economic Crises: A Panel Cointegration Application To Emerging And Developed Economies," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
    10. Beck-Friis, Peder & Willems, Tim, 2017. "Dissecting fiscal multipliers under the fiscal theory of the price level," European Economic Review, Elsevier, vol. 95(C), pages 62-83.
    11. José Augusto Lopes da Veiga & Alexandra Ferreira-Lopes & Tiago Neves Sequeira, 2016. "Public Debt, Economic Growth and Inflation in African Economies," South African Journal of Economics, Economic Society of South Africa, vol. 84(2), pages 294-322, June.
    12. Michael Woodford, 1998. "Control of the Public Debt: A Requirement for Price Stability?," International Economic Association Series, in: Guillermo Calvo & Mervyn King (ed.), The Debt Burden and its Consequences for Monetary Policy, chapter 5, pages 117-158, Palgrave Macmillan.
    13. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    14. Catao, Luis A.V. & Terrones, Marco E., 2005. "Fiscal deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 529-554, April.
    15. Goohoon Kwon & Lavern McFarlane & Wayne Robinson, 2006. "Public Debt, Money Supply, and Inflation: A Cross-Country Study and Its Application to Jamaica," IMF Working Papers 2006/121, International Monetary Fund.
    16. Eliana Cardoso & Albert Fishlow, 1990. "External Debt, Budget Deficits, and Inflation," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 2: Country Studies—Argentina, Bolivia, Brazil, Mexico, pages 318-334, National Bureau of Economic Research, Inc.
    17. Bleaney, Michael, 1996. "Inflation and Public Debt," Australian Economic Papers, Wiley Blackwell, vol. 35(66), pages 141-155, June.
    18. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    19. Tamunonimim Anipiriworima Ngerebo-A, 2014. "Domestic Debt Burden, Debt Overhang and Inflationary Pressure in Nigeria," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 3(3), pages 172-183.
    20. Aimola Akingbade U. & Odhiambo Nicholas M., 2020. "Public Debt and Inflation: A Review of International Literature," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 9-24, June.
    21. Lin, Hsin-Yi & Chu, Hao-Pang, 2013. "Are fiscal deficits inflationary?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 214-233.
    22. Odhiambo, Nicholas M., 2009. "Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach," Energy Policy, Elsevier, vol. 37(2), pages 617-622, February.
    23. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
    24. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 345-380.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akingbade U. Aimola & Nicholas M. Odhiambo & Christian Nsiah, 2021. "Public debt and inflation nexus in Nigeria: An ARDL bounds test approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1921905-192, January.
    2. Akingbade U. Aimola & Nicholas M. Odhiambo, "undated". "Public Debt and Inflation: Empirical Evidence from Ghana," Working Papers AESRIWP06, African Economic and Social Research Institute (AESRI).
    3. Aimola, Akingbade U & Odhiambo, Nicholas M, 2021. "Public debt and inflation: Empirical evidence from Ghana," Working Papers 27063, University of South Africa, Department of Economics.
    4. Aimola Akingbade U. & Odhiambo Nicholas M., 2020. "Public Debt and Inflation: A Review of International Literature," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 9-24, June.
    5. 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.
    6. Godwin Essang Esu,(PhD), 2023. "Fiscal Imbalances, Economic Growth and Macroeconomic Stability in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(8), pages 887-901, August.
    7. Bilal Raza & Khurram S Mughal, 2022. "Fiscal Determinants of Inflation in Pakistan," SBP Working Paper Series 108, State Bank of Pakistan, Research Department.
    8. Esat Durguti & Nexhat Kryeziu & Emine Gashi, 2020. "How Does the Budget Deficit Affect Inflation Rate-Evidence from Western Balkans," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(1), pages 01-10, January.
    9. 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.
    10. Mahmood Khalid & Wasim Shahid Malik & Wasim Abdul Sattar, 2007. "The Fiscal Reaction Function and the Transmission Mechanism for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 435-447.
    11. Aliyu Alhaji Jibrilla, 2016. "Fiscal sustainability in the presence of structural breaks: Does overconfidence on resource exports hurt government’s ability to finance debt? Evidence from Nigeria," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1170317-117, December.
    12. Buiter, Willem H. & Sibert, Anne C., 2018. "The fallacy of the fiscal theory of the price level: One last time," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-56.
    13. Saungweme, Talknice & Odhiambo, Nicholas M., 2020. "The Impact of Domestic and Foreign Public Debt on Economic Growth: Empirical Evidence from Zimbabwe," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(1), pages 77-106.
    14. Talknice Saungweme & Nicholas M. Odhiambo, 2019. "Does Public Debt Impact Economic Growth in Zambia? An Ardl-Bounds Testing Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 69(4), pages 53-73, October-D.
    15. Lawrence J. Christiano & Terry J. Fitzgerald, 2000. "Understanding the fiscal theory of the price level," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-38.
    16. repec:hum:wpaper:sfb649dp2006-016 is not listed on IDEAS
    17. Andreas Schabert, 2006. "Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 742-762, October.
    18. Jukka Railavo, 2004. "Stability consequences of fiscal policy rules," Macroeconomics 0404020, University Library of Munich, Germany.
    19. António Afonso, 2002. "Disturbing the Fiscal Theory of the Price Level: Can it Fit the EU-15," Working Papers Department of Economics 2002/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    20. Ismail O. Fasanya & Ayinke Fajobi & Abiodun Adetokunbo, 2021. "Are Fiscal Deficits Inflationary In Nigeria? New Evidence From Bounds Testing To Cointegration With Structural Breaks," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 66(228), pages 123-148, January –.
    21. Joseph Mawejje & Nicholas M. Odhiambo, 2020. "The determinants of fiscal deficits: a survey of literature," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(3), pages 403-417, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:afa:wpaper:aesriwp09. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Prof Nicholas M Odhiambo (email available below). General contact details of provider: https://aesri.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.