Original scientific paper

https://doi.org/10.2478/crebss-2021-0007

Public debt and inflation dynamics: Empirical evidence from Zimbabwe

Talknice Saungweme ; Department of Economics, University of South Africa, South Africa
Nicholas M. Odhiambo orcid.org/0000-0003-4988-0259 ; Department of Economics, University of South Africa, South Africa

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.

Keywords

Autoregressive Distributed Lag (ARDL); inflation; public debt; Zimbabwe

Hrčak ID:

266521

URI

https://hrcak.srce.hr/266521

Publication date:

7.12.2021.

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