Public Debt and Inflation Dynamics: A Time-Series Analysis of a Developing Economy

Abstract

Purpose: This study ascertains how the public debt influences inflation in developing economy. Using annual time-series data of Nigeria from 1990 to 2024. The independent variables are domestic debt and external debt and the dependent variable is inflation rate. Design/Methodology/Approach: A research design that was chosen was the ex-post facto research and the data was obtained through the Central Bank of Nigeria Statistical Bulletin. Autoregressive Distributed Lag (ARDL) method was used to examine both long-run and short-run association between the variables. Findings: The results indicate that domestic debt exhibits negative but only statistically insignificant influence on inflation and external debt exhibits positive but statistically insignificant influence on inflation. The ARDL Bounds test shows that there is no long-run dependency on the public debt and the inflation rate in Nigeria. Implications/Originality/Value: The implications of this study is that the reason why people are aboriginating inflation in Nigeria is not due to the public debt. Referring to the results, the research suggests a responsible debt management, meaningful utilization of the borrowed money, and improved fiscal and monetary policies to keep the inflation under control and establish the macroeconomic stability.