IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/94694.html
   My bibliography  Save this paper

Is the relationship between inflation and financial development symmetric or asymmetric? new evidence from Sudan based on NARDL

Author

Listed:
  • Ismail, Yusra
  • Masih, Mansur

Abstract

This study highlights the impact of inflation on financial development, using NARDL approach and the annual data available allow us to cover a period of 56 years. Sudan is used as a case study. The relationship between inflation and financial development remains an important issue in both theoretical and empirical literature because of its important implications on macroeconomic stabilization policies. The importance of the study comes from examining a developing country which is witnessing an economic deterioration generally and a hyper-inflation crisis that marked it as the second highest inflation rate in Africa in the 1st quarter of 2019. We test whether the relationship between the variables is symmetrical or asymmetrical in both short run and long run. Applying the autoregressive distributed lags model (ARDL) and Nonlinear ARDL approaches proposed by Pesaran et al. (2001) and Shin et al. (2014) respectively, results confirm the presence of long run equilibrium relationship between inflation and financial development. Our findings tend to suggest that the long run relationship is symmetrical, while evidence is in support of asymmetrical short- run trade-off between the variables. Two main contributions are added to the previous literature. First, it applies a recent methodology that is Nonlinear ARDL (NARDL). Secondly it presents a new evidence from one of the high indebted poor countries-HIPC (Sudan) using data from 1961 to 2017.

Suggested Citation

  • Ismail, Yusra & Masih, Mansur, 2019. "Is the relationship between inflation and financial development symmetric or asymmetric? new evidence from Sudan based on NARDL," MPRA Paper 94694, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94694
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/94694/1/MPRA_paper_94694.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bittencourt, Manoel, 2011. "Inflation and financial development: Evidence from Brazil," Economic Modelling, Elsevier, vol. 28(1), pages 91-99.
    2. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
    3. Hanif, Muhammad N. & Batool, Irem, 2006. "Openness and Inflation: A Case Study of Pakistan," MPRA Paper 10214, University Library of Munich, Germany.
    4. Kevin B. Grier & Ólan T. Henry & Nilss Olekalns & Kalvinder Shields, 2004. "The asymmetric effects of uncertainty on inflation and output growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(5), pages 551-565.
    5. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    6. Haroon Khan, 2015. "The Impact of Inflation on Financial Development," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 1(4), pages 42-48, October.
    7. Huybens, Elisabeth & Smith, Bruce D., 1999. "Inflation, financial markets and long-run real activity," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 283-315, April.
    8. Kim, Dong-Hyeon & Lin, Shu-Chin, 2010. "Dynamic Relationship Between Inflation And Financial Development," Macroeconomic Dynamics, Cambridge University Press, vol. 14(3), pages 343-364, June.
    9. Schreft, Stacey L. & Smith, Bruce D., 1997. "Money, Banking, and Capital Formation," Journal of Economic Theory, Elsevier, vol. 73(1), pages 157-182, March.
    10. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    11. Mr. Stanley Fischer & Ms. Ratna Sahay & Mr. Carlos A. Végh Gramont, 2002. "Modern Hyper- and High Inflations," IMF Working Papers 2002/197, International Monetary Fund.
    12. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71(3), pages 280-280.
    13. Andrew Phiri, 2015. "Asymmetric cointegration and causality effects between financial development and economic growth in South Africa," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 32(4), pages 464-484, October.
    14. Bruce Smith, 2003. "Taking intermediation seriously," Proceedings, Federal Reserve Bank of Cleveland, pages 1319-1377.
    15. Haffejee, muhammad Ismail & Masih, Mansur, 2018. "Is the relationship between financial development and income inequality symmetric or asymmetric ? new evidence from South Africa based on NARDL," MPRA Paper 87574, University Library of Munich, Germany.
    16. Azariadis, Costas & Smith, Bruce D, 1996. "Private Information, Money, and Growth: Indeterminacy, Fluctuations, and the Mundell-Tobin Effect," Journal of Economic Growth, Springer, vol. 1(3), pages 309-332, September.
    17. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
    18. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
    19. Abdullah Mohammed Almalki & Khaled Ibrahim Batayneh, 2015. "The relationship between inflation and financial development in Saudi Arabia," Journal of Developing Areas, Tennessee State University, College of Business, vol. 49(6), pages 321-332, Special I.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emilio Munene Gachoki, 2023. "The Impact of Financial Development on Inflation: Empirical Evidence from Kenya using the ARDL Approach," International Journal of Science and Business, IJSAB International, vol. 28(1), pages 147-160.

    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. HAMI Mahyar, 2017. "The Effect Of Inflation On Financial Development Indicators In Iran (2000-2015)," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 12(2), pages 53-62, August.
    2. Nazima Ellahi & Adiqa Kausar Kiani & Muhammad Awais & Hina Affandi & Rabia Saghir & Sarah Qaim, 2021. "Investigating the Institutional Determinants of Financial Development: Empirical Evidence From SAARC Countries," SAGE Open, , vol. 11(2), pages 21582440211, April.
    3. Ehigiamusoe, Kizito Uyi & Vinitha Guptan & Narayanan, Suresh, 2019. "The effects of income and inflation on financial development: Evidence from heterogeneous panels," Economics Discussion Papers 2019-11, Kiel Institute for the World Economy (IfW Kiel).
    4. Satti, Saqlain Latif & Shahbaz, Muhammad & Mujahid, Nooreen & Ali, Amjad, 2013. "Impact of Financial Development and Globalization on Inflation: The Role of Remittance and Economic Growth in Bangladesh," MPRA Paper 51675, University Library of Munich, Germany, revised 21 Nov 2013.
    5. Ho, Sin-Yu, 2017. "The Macroeconomic Determinants of Stock Market Development: Evidence from Malaysia," MPRA Paper 77232, University Library of Munich, Germany.
    6. Huang, Ho-Chuan & Lin, Shu-Chin & Kim, Dong-Hyeon & Yeh, Chih-Chuan, 2010. "Inflation and the finance-growth nexus," Economic Modelling, Elsevier, vol. 27(1), pages 229-236, January.
    7. Hamdi Becha & Maha Kalai & Kamel Helali, 2023. "Smooth transition regression model relating inflation to economic growth in Tunisia," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 12(1), pages 1-26, December.
    8. Muhammad Shahbaz & Hrushikesh Mallick & Mantu Kumar Mahalik & Shawkat Hammoudeh, 2018. "Is globalization detrimental to financial development? Further evidence from a very large emerging economy with significant orientation towards policies," Applied Economics, Taylor & Francis Journals, vol. 50(6), pages 574-595, February.
    9. Gaetano Antinolfi & Claudia M. Landeo & Maxim Nikitin, 2007. "Dollarization and the inflation threshold," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 628-649, May.
    10. Witness Nyasha Bandura & Temitope L. A. Leshoro, 2022. "Inflation And Financial Development In Sub-Saharan Africa," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(233), pages 85-112, April – J.
    11. Sin-Yu Ho, 2019. "The macroeconomic determinants of stock market development in Malaysia: an empirical analysis," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 21(2), pages 174-193.
    12. Kizito Uyi Ehigiamusoe & Mohamad Shaharudin Samsurijan, 2021. "What matters for finance‐growth nexus? A critical survey of macroeconomic stability, institutions, financial and economic development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5302-5320, October.
    13. Sulemana Mahawiya, 2015. "Financial sector development and threshold effect of inflation in ECOWAS and SADC: A Panel smooth transition regression approach," Working Papers 539, Economic Research Southern Africa.
    14. Ho, Sin-Yu, 2017. "The Macroeconomic Determinants of Stock Market Development: Evidence from South Africa," MPRA Paper 76493, University Library of Munich, Germany.
    15. Kunofiwa Tsaurai, 2017. "Inflation Thresholds-Financial Development Nexus in South-Eastern Asian Emerging Markets," Journal of Economics and Behavioral Studies, AMH International, vol. 9(4), pages 14-24.
    16. Natia KUTIVADZE, 2011. "Public debt and financial development," Departmental Working Papers 2011-13, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    17. Ghossoub, Edgar A., 2023. "Economic growth, inflation, and banking sector competition," Economic Modelling, Elsevier, vol. 129(C).
    18. Yongfu Huang & Jonathan Temple, 2005. "Does external trade promote financial development?," Bristol Economics Discussion Papers 05/575, School of Economics, University of Bristol, UK.
    19. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
    20. Bittencourt, Manoel, 2011. "Inflation and financial development: Evidence from Brazil," Economic Modelling, Elsevier, vol. 28(1), pages 91-99.

    More about this item

    Keywords

    Inflation; financial development; non-linear ARDL;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    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:pra:mprapa:94694. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.