The Impact of Inflation on Economic Growth in Afghanistan

Abstract

This study probes the short run and long run nexus between inflation and economic growth in Afghanistan. The present study tries to fill the mentioned research gap and figure out the linkage by the ARDL method using monthly data spanning from January 2010 to December 2016. A major outcome of this paper is that there is evidence of short run nexus between inflation and economic growth explicitly low episodes of inflation rate increases economic growth in the country. No clear interconnection in the long run between the two focal variables found. Thus, the government to be vigilant to formulate policies to sustain the economic growth and to target inflation rate at its possible minimum rate by doing the following core policy measures. First, to control over the market prices via coordination with the domestic trade unions. Second, establishing intra governmental or regional cooperation to coordinate their fiscal, monetary, and exchange rate policies to stabilize the inflation and boost the GDP growth.