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Does External Debt Drive Inflation in Sudan? Evidence from Symmetric and Asymmetric ARDL approaches

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  • Sharaf, Mesbah Fathy
  • Shahen, Abdelhalem Mahmoud

Abstract

This study aims to examine the symmetric and asymmetric impact of external debt on inflation in Sudan from 1970 to 2020 within a multivariate framework by including money supply and the nominal effective exchange rate as additional inflation determinants. We utilize an Auto Regressive Distributed Lag (ARDL) model to examine the symmetric impact of external debt on inflation, while the asymmetric impact is examined using a nonlinear Auto Regressive Distributed Lag (NARDL) model. The existence of a long-run relationship between inflation and external debt is tested using the bounds-testing approach to cointegration, and a vector error-correction model is estimated to determine the short parameters of equilibrium dynamics. The linear ARDL model results show that external debt has no statistically significant impact on inflation in the long run. On the contrary, the results of the NARDL model show that positive and negative external debt shocks statistically affect inflation in the long run. The estimated long-run elasticity coefficients of both the linear and nonlinear ARDL models reveal that the domestic money supply has a statistically significant positive impact on inflation. In contrast, the nominal effective exchange rate has a statistically significant negative impact on inflation. The reliance on symmetric analysis may not be sufficient to uncover the existence of a linkage between external debt and inflation. Proper external debt management is crucial to control inflation rates in Sudan.

Suggested Citation

  • Sharaf, Mesbah Fathy & Shahen, Abdelhalem Mahmoud, 2023. "Does External Debt Drive Inflation in Sudan? Evidence from Symmetric and Asymmetric ARDL approaches," MPRA Paper 116856, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116856
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    References listed on IDEAS

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    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. Zsolt Darvas, 2021. "Timely measurement of real effective exchange rates," Bruegel Working Papers 46497, Bruegel.
    3. Ahmad Zubaidi Baharumshah & Abdalla Sirag & Norashidah Mohamed Nor, 2017. "Asymmetric Exchange Rate Pass-through in Sudan: Does Inflation React Differently during Periods of Currency Depreciation?," African Development Review, African Development Bank, vol. 29(3), pages 446-457, September.
    4. Mohsen Bahmani-Oskooee & Amirhossein Mohammadian, 2017. "Asymmetry effects of exchange rate changes on domestic production in Japan," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(6), pages 774-790, November.
    5. Sunder-Plassmann, Laura, 2020. "Infation, default and sovereign debt: The role of denomination and ownership," Journal of International Economics, Elsevier, vol. 127(C).
    6. repec:afa:wpaper:aesri-2021-09 is not listed on IDEAS
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    Cited by:

    1. Mesbah Fathy Sharaf & Abdelhalem Mahmoud Shahen & Badr Abdulaziz Binzaid, 2024. "Asymmetric and Nonlinear Foreign Debt–Inflation Nexus in Brazil: Evidence from NARDL and Markov Regime Switching Approaches," Economies, MDPI, vol. 12(1), pages 1-20, January.
    2. Blessing Ose Oligbi, Ph D, 2024. "Inflation, External Debt and Economic Growth in Nigeria: Empirical Appraisal using ARDL," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(6), pages 1782-1796, June.

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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