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Is the relationship between inflation and financial development symmetric or asymmetric? new evidence from Sudan based on NARDL

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  • Ismail, Yusra
  • Masih, Mansur

Abstract

This study highlights the impact of inflation on financial development, using NARDL approach and the annual data available allow us to cover a period of 56 years. Sudan is used as a case study. The relationship between inflation and financial development remains an important issue in both theoretical and empirical literature because of its important implications on macroeconomic stabilization policies. The importance of the study comes from examining a developing country which is witnessing an economic deterioration generally and a hyper-inflation crisis that marked it as the second highest inflation rate in Africa in the 1st quarter of 2019. We test whether the relationship between the variables is symmetrical or asymmetrical in both short run and long run. Applying the autoregressive distributed lags model (ARDL) and Nonlinear ARDL approaches proposed by Pesaran et al. (2001) and Shin et al. (2014) respectively, results confirm the presence of long run equilibrium relationship between inflation and financial development. Our findings tend to suggest that the long run relationship is symmetrical, while evidence is in support of asymmetrical short- run trade-off between the variables. Two main contributions are added to the previous literature. First, it applies a recent methodology that is Nonlinear ARDL (NARDL). Secondly it presents a new evidence from one of the high indebted poor countries-HIPC (Sudan) using data from 1961 to 2017.

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  • Ismail, Yusra & Masih, Mansur, 2019. "Is the relationship between inflation and financial development symmetric or asymmetric? new evidence from Sudan based on NARDL," MPRA Paper 94694, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94694
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    References listed on IDEAS

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    Cited by:

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    2. Khanday, Ishfaq Nazir & Tarique, Md., 2023. "Does income inequality respond asymmetrically to financial development? Evidence from India using asymmetric cointegration and causality tests," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).

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    More about this item

    Keywords

    Inflation; financial development; non-linear ARDL;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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