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South Africa's inflation: Monetary or fiscal

Author

Listed:
  • Guangling Liu

  • Christopher Solomon

Abstract

Conventional macroeconomics has viewed inflation as a monetary phenomenon through the Quantity Theory of Money. Ever-increasing sovereign debt globally has caused concern among economists. These concerns follow not from the ability of governments to repay their debt, but rather from the impact of sizeable debt portfolios on price levels. The Fiscal Theory of the Price Level epitomizes these concerns, contrasting the traditional view on inflation by arguing that it is a fiscal phenomenon caused by debt issuance without real backing. This study uses this fiscal inflation theory to analyse South Africa's inflation through a fiscal-monetary VAR model, finding that South Africa's inflation dynamics are accurately described by both monetary and fiscal factors, but more so by the latter.

Suggested Citation

  • Guangling Liu & Christopher Solomon, 2026. "South Africa's inflation: Monetary or fiscal," ERSA Working Paper Series 261, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:261
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    File URL: https://ersawps.org/index.php/working-paper-series/article/view/261/188
    File Function: First version, 2026
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    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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