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The Impact of Fiscal Deficit on Inflation in Namibia

Author

Listed:
  • Joel Hinaunye Eita

    (School of Economics, University of Johannesburg, South Africa)

  • Victoria Manuel

    (Bank of Namibia, Namibia)

  • Erwin Naimhwaka

    (Bank of Namibia, Namibia)

  • Florette Nakusera

    (Bank of Namibia, Namibia)

Abstract

This paper examined the impact of fiscal deficit on inflation in Namibia. The paper employed Autoregressive Distributed Lag Model (ARDL) and Granger causality approach using quarterly data for the period 2002 - 2017. Empirical results showed evidence of a long run positive effect of fiscal deficit on inflation in Namibia. This suggests that fiscal deficit has a direct effect on inflation in Namibia. The study also found a unidirectional causality running from fiscal deficit to inflation in Namibia. The study confirmed that South Africa’s prices have positive effect on inflation in Namibia. The key policy implication drawn for the result is that if not contained, high negative fiscal balances could impair the monetary policy objective of price stability. It is therefore advised that fiscal and monetary policies need to be well coordinated to bring fiscal deficit within acceptable level. Given that the main monetary policy goal in Namibia is to achieve and maintain price stability, the results in this study suggest that monitoring budget deficits and price developments in South Africa to develop informed policies is one way to achieve this objective.

Suggested Citation

  • Joel Hinaunye Eita & Victoria Manuel & Erwin Naimhwaka & Florette Nakusera, 2021. "The Impact of Fiscal Deficit on Inflation in Namibia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 141-164.
    • Handle: RePEc:cbk:journl:v:10:y:2021:i:1:p:141-164
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal deficit; inflation; Namibia; ARDL; cointegration.;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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