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Dynamic Relationship Between External Debt, Inflation, and Exchange Rate in Lao PDR

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  • Â Keoudone KEOTHEPHAR

    (School of Economics and Trade, Hunan University, Changsha, China.)

  • Ananthala Nakhiengchanh

    (Banking Institute, Bank of the Lao PDR, Laos.)

  • Thonemy Keokinnaly

    (Banking Institute, Bank of the Lao PDR, Laos.)

  • Chanhthasouk Lathsaath

    (Banking Institute, Bank of the Lao PDR, Laos.)

Abstract

This study investigates the dynamic relationship between external debt, inflation rate, and the exchange rate of the Lao Kip (LAK) against the US dollar over the period of 2000 to 2021. Utilizing time series data and the Autoregressive Distributed Lag (ARDL) Model, we analyze the impacts of these economic variables in both the short and long run. Our estimation results reveal a significant long-term positive relationship between external debt and the inflation rate with the exchange rate. Inflation rate and external debt have a significantly positive impact on exchange rate in the long run, while short-term analysis indicate a negative relationship between external debt and the inflation rate with the exchange rate. economic shocks or short-term fluctuations may disrupt the exchange rate, the system has a strong tendency to return to its long-term equilibrium point at a brisk pace. The policy implications are discussed. Therefore, policymakers must maintain a stable and controlled inflation environment. Inflation targeting and other monetary policy measures can be utilized to ensure that inflation remains within a manageable range. Keeping inflation under control can help stabilize the exchange rate and safeguard the country's economic stability.

Suggested Citation

  • Â Keoudone KEOTHEPHAR & Ananthala Nakhiengchanh & Thonemy Keokinnaly & Chanhthasouk Lathsaath, 2024. "Dynamic Relationship Between External Debt, Inflation, and Exchange Rate in Lao PDR," International Journal of Science and Business, IJSAB International, vol. 33(1), pages 123-138.
    • Handle: RePEc:aif:journl:v:33:y:2024:i:1:p:123-138
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    References listed on IDEAS

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    2. Odedokun, M O, 1995. "An Econometric Explanation of Inflation in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 4(3), pages 436-451, December.
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