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Inflation and Economic Growth in Zambia: A Threshold Autoregressive (TAR) Econometric Approach

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  • Phiri, Andrew

Abstract

This study examines threshold effects of inflation on economic growth for the Zambian economy using quarterly data collected between 1998 and 2011. This objective is tackled through the use of a threshold autoregressive (TAR) model and the conditional least squares (CLS) estimation technique. As a by-product of utilizing this estimation technique, the paper is able to identify whether there could be an optimal inflation level at which the adverse effects of inflation on economic growth are subdued, or similarly, a level of inflation at which the positive effects of inflation on economic growth are maximized. In this respect, the paper estimates an inflation threshold level of 22.5% for the observed data. These results indicate that economic growth in Zambia can be stimulated even in a moderately high inflation environment. Particularly, the causality analysis identifies the credit sector and exchange rate developments as being crucial channels towards ensuring enhanced economic performance in the Zambian economy.

Suggested Citation

  • Phiri, Andrew, 2013. "Inflation and Economic Growth in Zambia: A Threshold Autoregressive (TAR) Econometric Approach," MPRA Paper 52093, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:52093
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    Cited by:

    1. Andrew Phiri, 2020. "Endogenous monetary approach to optimal inflation–growth nexus in Swaziland," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 11(4), pages 559-571, March.
    2. Chizonde, Bright, 2016. "The Macroeconomic Determinants of Economic Growth in Zambia: Do Copper prices matter?," MPRA Paper 87854, University Library of Munich, Germany.
    3. Boniface Yemba & Erick Kitenge & Paul Woodburne, 2020. "Non‐linear Effects of Inflation on Economic Growth in the Democratic Republic of the Congo," South African Journal of Economics, Economic Society of South Africa, vol. 88(4), pages 536-550, December.
    4. Ndoricimpa Arcade, 2017. "Working Paper 249 - Threshold Effects of Inflation on Economic Growth in Africa: Evidence from a Dynamic Panel Threshold Regression," Working Paper Series 2359, African Development Bank.
    5. Ibrahim D. Raheem, 2018. "Inflation rate of 14–16% is fair for the sub-Saharan African dollarization," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(4), pages 779-794, October.

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    More about this item

    Keywords

    Inflation; Economic Growth; Granger Causality; TAR Models; Zambia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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