Dynamic Analysis of the Relationship Between Budget Deficit Financing Modes and Inflation in Africa

Fiscal deficit and monetary dynamics in India: unravelling the asymmetric nexus

Asymmetric Pass-through of Taxation and Deficit Financing to Inflation: Evidence from the West African Monetary Zone (WAMZ)

In this study, we deepen the understanding of the asymmetric effects of tax revenue, deficit financing, and debt servicing on inflation in the member countries (Ghana, Guinea, The Gambia, Liberia, Nigeria, and Sierra Leone) of the West African Monetary Zone (WAMZ). We employ a non-linear autoregressive distributed lag model (NARDL) and the TodaYamamoto causality test to analyze the datasets obtained from the Organization of Economic Cooperation and Development (OECD) Statistics and World Development Indicators (WDI). The findings indicate that the inflation rate responds negatively to positive changes in tax revenue. This implies that an increase in taxation reduces the rate of inflation in the long run. The partial sums of positive and negative changes in external debt stock have mixed effects on the inflation rate over the long term. While the inflation rate responds positively to positive changes in external borrowings, its response to negative changes in external borrowings is significantly negative at the 5% level. The positive effect of external borrowings on the inflation rate demonstrates that funds borrowed from external sources increase the money supply, which stimulates inflationary pressures in the region. Further analysis revealed that the asymmetric long-term effect of external debt servicing on the inflation rate is positive. This indicates that an increase in debt servicing is inflationary in the long run. Given the findings, we recommend that the fiscal authorities in the WAMZ, especially the Ministry of Finance, Debt Management Agencies, and the West African Monetary Institute (WAMI), ensure that loans from external sources to member countries are directed towards fostering higher long-term growth to maintain price level stability.

Exploring the interplay of institutional quality, external debt and economic growth in Sub-Saharan Africa

This study asks whether the institutional conditions surrounding external borrowing help explain its association with economic performance in Sub-Saharan Africa. Sustainable borrowing is understood as the use of external finance to generate durable economic returns without eroding repayment capacity, fiscal space, or future development investment. We analyse 520 country year observations from 40 countries covering 2012 to 2024 using a two step system generalised method of moments estimator. External debt is negatively associated with real GDP per capita in the baseline model, with statistical significance at the 10% level (β =  − 0.4014, p  = 0.066). In the model without interaction terms, control of corruption (β = 0.6787, p  < 0.001), government effectiveness (β = 0.4552, p  < 0.001), and regulatory quality (β = 0.5834, p  = 0.018) are positively associated with real GDP per capita. The interaction estimates show that the negative association with debt weakens as government effectiveness (β = 0.1455, p  = 0.002) and regulatory quality (β = 0.4085, p  < 0.001) improve. The interaction with control of corruption is positive but supported by weaker evidence (β = 0.9963, p  = 0.053). These estimates do not measure debt sustainability itself. They show that institutional dimensions are not interchangeable and identify administrative capacity and regulatory credibility as the clear institutional conditions associated with a less adverse debt coefficient.

THE IMPACT OF PARALLEL EXCHANGE RATE ON INFLATION IN ALGERIA (2000-2024)

This study investigates the long-run and short-run impact of the parallel exchange rate on inflation in Algeria over the period 2000–2024. Using annual time-series data and the autoregressive distributed lag bounds testing approach, we estimate dynamic relationships while accommodating mixed integration orders. Results confirm cointegration between the variables, with a long-run elasticity of 0.43, indicating that a 1% depreciation in the parallel market raises inflation by 0.43 percentage points. The error-correction term of -0.32 indicates that approximately 32% of the disequilibrium is corrected annually. Diagnostic and sensitivity analyses, including Chow breakpoint tests and rolling-window estimates, validate the model's stability and robustness. The findings underscore the structural role of informal exchange rate dynamics in driving domestic price pressures, particularly following the 2014 oil price shock. Policymakers, central bankers, and researchers focused on macroeconomic stabilization in resource-dependent economies will find these results instrumental for designing exchange rate reforms, inflation-targeting frameworks, and structural diversification strategies aimed at reducing vulnerability to external shocks and informal market volatility.

Inflation, Unemployment, and Growth: Testing the Trade-Offs in Emerging Economies

This paper aims at reconsidering three classical macroeconomic relationships (the Phillips curve, Okun's law and the inflation–growth nexus) in a unique empirical setting of emerging economies. The study uses an unbalanced panel of 34 emerging market economies over the period 2000-2023 using the World Bank's World Development Indicators (WDI), and estimates each of the relationships separately and together, with the inclusion of gross capital formation, trade openness, government consumption and level of financial development. The use of panel fixed-effects and two-step system generalised method of moments (GMM) estimators is used to deal with unobserved heterogeneity and dynamic endogeneity issues. The Phillips curve trade-off is statistically significant; but it is relatively small in economic terms: a one-percentage-point increase in the unemployment rate reduces the inflation rate by about 0.28 percentage points. Okun's law is found to be a very strong relationship: a one-percentage-point increase in the unemployment rate is associated with a 0.41 percentage-point decline in real GDP growth. The relationship between inflation and growth is nonlinear and a threshold model identifies the turning point as around 9.4% annual inflation, beyond which increases in inflation have a much greater impact on growth. The results point to a cautious inflation targeting policy in the emerging markets: the estimated Phillips slope implies that disinflation carries real output costs, although the sacrifice ratio itself is not calculated here and no direct comparison of disinflation costs with the advanced economies is claimed.  

Macroeconomic Shocks, Credit-Risk Persistence, and the Limits of Nonlinear Transmission in Emerging Europe

This paper examines how economic downturns and currency movements affect the quality of bank loans in Central, Eastern, and Southeastern Europe, using annual data for 14 national banking systems over 2008–2023. We estimate a bias-corrected dynamic fixed-effects model, verify inference with Driscoll–Kraay, cluster-robust, and wild cluster bootstrap procedures, run formal threshold tests, and conduct scenario simulations. Credit risk is highly persistent. The bias-corrected autoregressive coefficient of 0.944 implies a half-life of 12.0 years, although the bootstrap confidence interval of 0.601 to 1.048 does not rule out near-unit-root behavior. Exchange-rate depreciation predicts higher non-performing loan (NPL) ratios and survives both the strictest few-cluster test (p = 0.028) and a correction for euro-adoption breaks, while lower real GDP per capita growth is marginal under the same test (p = 0.060). Threshold tests that re-estimate the threshold in every bootstrap replication do not reject linearity in any of 14 configurations (minimum p-value of 0.071). Institutional quality does not measurably moderate the exchange-rate channel. A severe combined adverse scenario raises the projected NPL ratio from 6.54 to 12.32 percent over five years (90 percent interval: 8.2 to 24.6 percent). Together, the surviving channels and the disciplined null results delimit nonlinear transmission in emerging Europe.