Public debt and inflation: empirical evidence from Ghana

Abstract

This paper investigates the impact of public debt on inflation in Ghana using annual data during the period 1983–2018. The study uses the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration and an error correction model to examine this linkage. The cointegrating regression results reveal evidence of a stable long-run relationship between inflation and the explanatory variables in the presence of a structural break. The findings also show a positive and significant impact of public debt on inflation. These results were found to hold, irrespective of whether the regression was conducted in the short run or in the long run. The study confirms the presence of the inflationary effects of public debt in Ghana. The government should, therefore, be prudent when considering increases in public debt to minimize volatility in inflation and its associated risks to the economy.