Asymmetric and nonlinear foreign debt-inflation nexus in Brazil: Evidence from NARDL and Markov regime switching approaches
Abstract
EconStor is a publication server for scholarly economic literature, provided as a non-commercial public service by the ZBW.
Full text
Sharaf, Mesbah Fathy; Abdelhalem Mahmoud Shahen; Badr Abdulaziz Binzaid Article Asymmetric and nonlinear foreign debt-inflation nexus in Brazil: Evidence from NARDL and Markov regime switching approaches Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Sharaf, Mesbah Fathy; Abdelhalem Mahmoud Shahen; Badr Abdulaziz Binzaid (2023) : Asymmetric and nonlinear foreign debt-inflation nexus in Brazil: Evidence from NARDL and Markov regime switching approaches, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 12, Iss. 1, pp. 1-20, https://doi.org/10.3390/economies12010018 This Version is available at: https://hdl.handle.net/10419/328945 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/
Citation: Sharaf, Mesbah Fathy, Abdelhalem Mahmoud Shahen, and Badr Abdulaziz Binzaid. 2024. Asymmetric and Nonlinear Foreign Debt–Inflation Nexus in Brazil: Evidence from NARDL and Markov Regime Switching Approaches. Economies 12: 18. https://doi.org/ 10.3390/economies12010018 Academic Editor: Angeliki N. Menegaki Received: 13 December 2023 Revised: 4 January 2024 Accepted: 9 January 2024 Published: 15 January 2024 Copyright: © 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). economies Article Asymmetric and Nonlinear Foreign Debt–Inflation Nexus in Brazil: Evidence from NARDL and Markov Regime Switching Approaches Mesbah Fathy Sharaf 1,2,* , Abdelhalem Mahmoud Shahen 3,4 and Badr Abdulaziz Binzaid 4 1Department of Economics, Faculty of Arts, University of Alberta, Edmonton, AB T6G2H4, Canada 2Department of Economics, Faculty of Commerce, Damanhour University, Damanhour 22514, Egypt 3Department of Economics, Faculty of Economics Studies and Political Science, Alexandria University, Alexandria P.O. Box 5424041, Egypt; [email protected] 4Department of Economics, College of Economics and Administrative Sciences, Imam Mohammad Ibn Saud Islamic University (IMSIU), P.O. Box 5701, Riyadh 11432, Saudi Arabia; [email protected] *Correspondence: [email protected] Abstract: This paper augments the sparse literature on the inflationary impact of foreign debt in Brazil while addressing methodological caveats in previous studies. We depart from the linearity assumption and employ two nonlinear techniques: the nonlinear autoregressive distributed lag (NARDL) model and a Markov Switching Regression (MSR) to investigate the connection between foreign debt and inflation within a multivariate framework. The analyses consider the presence of structural breaks via assessing variable stationarity using the Zivot and Andrew unit root test and incorporating a residual-based cointegration test proposed by Gregory and Hansen. Additionally, we apply a multiple structural breakpoints test by Bai and Perron to determine the presence of structural breaks in the impact of foreign debt on inflation. Our findings robustly indicate that the domestic money supply has a statistically significant positive effect, while the nominal effective exchange rate has a negative effect on inflation in both the short and long run. The NARDL model reveals that only positive changes in foreign debt have a statistically significant negative effect on inflation in the short run, whereas both positive and negative foreign debt changes significantly affect inflation in the long run. The results from the MSR model are generally consistent with those of the NARDL model. Keywords: asymmetry; Brazil; foreign debt; inflation; nonlinearity 1. Introduction Developing economies usually need help accumulating capital and financing their increasing public expenditures. This leads them to rely on foreign borrowing to fund their development needs and address their budget deficits and trade imbalances (Aimola and Odhiambo 2020). On the opposite view, foreign debt could create an acute debt overhang issue, and if the foreign debt becomes unsustainable, it can cause economic uncertainty and instability. There is substantial empirical evidence that high levels of foreign debt can lead to inflation and solvency issues, which pose significant risks to a country’s financial stability and vulnerability to foreign shocks. Moreover, borrowing to plug budget deficits can impact inflation by monetizing foreign debt (Reinhart and Rogoff 2013;Mweni et al. 2016). Statistics reveal that Brazil has increasingly relied on foreign borrowing to finance its rising developmental needs. However, it is crucial to acknowledge that this reliance on foreign debt could adversely affect macroeconomic indicators, including inflation. The increasing levels of foreign debt and inflation in Latin America have prompted questions about the nature of their relationship. There is considerable literature that examines the effect of foreign debt on inflation in several countries, using a variety of econometric methodologies and covering different Economies 2024,12, 18. https://doi.org/10.3390/economies12010018 https://www.mdpi.com/journal/economies
Economies 2024,12, 18 2 of 20 periods, with inconclusive findings. 1 A common feature among most empirical studies is that they assume that inflation responds symmetrically to changes in foreign debt. The mixed findings regarding the inflationary effect of foreign debt might be due to the failure of previous studies to consider the potential asymmetry in the inflationary effect of foreign debt, which the current study aims to overcome. Meanwhile, although the relationship between foreign debt and inflation has garnered growing attention, very few studies have examined this nexus in Brazil, and the existing ones were published quite a long time ago. Instead, the focus has been on the linkage between Brazil’s foreign debt and economic growth rather than inflation (e.g., Koyuncu Çakmak and Demirhan 2020;Afonso et al. 2020). The main objective of this study is to unmask the nature of the relationship between foreign debt and inflation in Brazil over the period 1980 to 2020 within a multivariate framework while addressing methodological caveats in previous related studies. In particular, this study contributes to the sparse literature on the inflationary effect of foreign debt in Brazil along several dimensions. Firstly, it departs from the conventional linearity and symmetry assumptions and utilizes nonlinear and asymmetric methodologies, such as the nonlinear autoregressive distributed lag (NARDL) model and the Markov Switching Regression (MSR). Methodologically, we also address concerns regarding the presence of structural breaks when checking stationarity and cointegration between the variables. Secondly, to date, we are not aware of any study that investigates the asymmetric and nonlinear nexus between foreign debt and inflation in Brazil, as well as the potential regime shifts in regard to this relationship, and the current study aims to fill this gap in the literature. The current study’s findings based on linear models suggest no significant foreign debt effect on inflation; nonetheless, nonlinear models counter this, revealing a substantial negative effect for both positive and negative foreign debt shocks on inflation. Our findings also robustly indicate that the domestic money supply has a positive effect, while the nominal effective exchange rate has a negative effect on inflation. The results also revealed the existence of structural breaks in the examined variables and their underlying relationships. These findings underscore the necessity of considering asymmetries and structural breaks for a comprehensive understanding of how foreign debt influences inflation in Brazil. We expect these findings to offer valuable insights for policymakers in Brazil, potentially aiding in devising more effective strategies for managing inflation and foreign debt levels. The remaining structure of the paper is set as follows: Section 2provides an overview of Brazil’s foreign debt and inflation rate trends over the past four decades. Section 3 reviews the related theoretical and empirical literature. Section 4presents the econometric methodology. Section 5summarizes the empirical results, which are then discussed in Section 6. 2. Evolution of the Foreign Debt and Inflation Rate in Brazil over the Period 1980 to 2020 Figure 1displays the evolution of Brazil’s foreign debt and inflation rates from 1980 to 2020. The figure suggests a dynamic and fluctuating relationship between foreign debt stocks (% of GNI) and the inflation rate in Brazil from 1980 to 2020.2 The figure also illustrates the correlation between these two variables and how their relationship has changed over the past four decades. Specifically, the data show a fluctuating trend in foreign debt stocks and inflation rates with an apparent structural break. This structural change in the trends can be easily visualized by dividing the study period into two sub-periods: the 1980s to mid-1990s sub-period (Figure 1a) and the mid-1990s to 2020 sub-period (Figure 1b). The figure clearly illustrates a structural break in these three series around 1995. This notable structural break serves as the primary rationale for dividing the study into two distinct periods, with the year 1995 serving as the demarcation point that distinguishes the two segments depicted in Figure 1.
Economies 2024,12, 18 3 of 20 Economies2024,12,xFORPEERREVIEW3of21 : intotwosub‐periods:the1980stomid‐1990ssub‐period(Figure1a)andthemid‐1990sto 2020sub‐period(Figure1b). Figure1.Brazil’sexternaldebtandinflationrateduringtheperiod(1980–2020).Source:Authors’ compilationbasedondatafrom(WDI). Thefigureclearlyillustratesastructuralbreakinthesethreeseriesaround1995.This notablestructuralbreakservesastheprimaryrationalefordividingthestudyintotwo distinctperiods,withtheyear1995servingasthedemarcationpointthatdistinguishes thetwosegmentsdepictedinFigure1 . AsdemonstratedinFigure1a,intheinitialperiodspanningfromthe1980stothe mid‐1990s(thefirstperiod),Brazil’sforeigndebtasapercentageofGNIexhibitedfluc‐ tuationswithintherangeof30%to60%.Duringthissameperiod,thecountrygrappled withelevatedinflationratesrangingfrom100%toover2900%.Notably,1989markeda significantturningpointasBrazilexperiencedadramaticsurgeinitsannualinflation rate,reachinganunprecedented1430.7%.Thiseventsignaledtheonsetofhyperinflation, leadingtosevereeconomicinstabilityandasubstantialdevaluationoftheBraziliancur‐ rency,theCruzeiro.3By1990,inflationhadpeakedatanalarming2947.7%,thehighest pointrecordedthroughoutthestudyperiod. Concurrently,1989representedapivotalyearinBrazil’spoliticalevolution,asthe nationhelditsfirstdirectpresidentialelectionsinnearlythreedecades,ultimatelyelect‐ ingademocraticgovernment(Bethell2000).Therefore,1989isaradicalturningpoint, impactingBrazil’seconomicandpoliticaldomains. The1980sisknownasthe“lostdecade”duetotheeconomicinstabilityanddebt crisisexperiencedbymanyLatinAmericancountries,includingBrazil.Brazil’sversionof the“lostdecade”wascharacterizedbyeconomicstagnation,hyperinflation,andasig‐ nificantburdenofforeigndebt(Grinberg2008;Valença1998). ThehighforeigndebtinBrazilposedasignificantchallengeinrepayingloans, which,inturn,ledtoreducedinvestmentandgrowth,resultinginelevatedinflation rates.Duringthisperiod,aclearpositivecorrelationbetweenforeigndebtandinflation emerged,signifyingthathighlevelsofforeigndebtwerelinkedtosoaringinflation.The economiccrisisinBrazilduringthe1980sandearly1990swasprimarilydrivenbythe simultaneousissuesofhighinflationandforeigndebt,coupledwithalackoffiscaldis‐ cipline.Thegovernment’simplementationofmultipleeconomicstabilizationplans aimedtoaddressthesechallenges,buttheseeffortswerelargelyineffectiveinquelling hyperinflation. 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 0.0 500.0 1000.0 1500.0 2000.0 2500.0 3000.0 3500.0 1980 1982 1984 1986 1988 1990 1992 1994 (a) Periodfrom1980to1995 Inflation,consumerprices(annual%) Externaldebtstocks(%ofGNI) 0.0 10.0 20.0 30.0 40.0 50.0 0.0 5.0 10.0 15.0 20.0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 (b) Periodfrom1996to2020 Inflation,consumerprices(annual%) Externaldebtstocks(%ofGNI) Figure 1. Brazil’s external debt and inflation rate during the period (1980–2020). Source: Authors’ compilation based on data from (WDI). As demonstrated in Figure 1a, in the initial period spanning from the 1980s to the mid-1990s (the first period), Brazil’s foreign debt as a percentage of GNI exhibited fluctuations within the range of 30% to 60%. During this same period, the country grappled with elevated inflation rates ranging from 100% to over 2900%. Notably, 1989 marked a significant turning point as Brazil experienced a dramatic surge in its annual inflation rate, reaching an unprecedented 1430.7%. This event signaled the onset of hyperinflation, leading to severe economic instability and a substantial devaluation of the Brazilian currency, the Cruzeiro. 3 By 1990, inflation had peaked at an alarming 2947.7%, the highest point recorded throughout the study period. Concurrently, 1989 represented a pivotal year in Brazil’s political evolution, as the nation held its first direct presidential elections in nearly three decades, ultimately electing a democratic government (Bethell 2000). Therefore, 1989 is a radical turning point, impacting Brazil’s economic and political domains. The 1980s is known as the “lost decade” due to the economic instability and debt crisis experienced by many Latin American countries, including Brazil. Brazil’s version of the “lost decade” was characterized by economic stagnation, hyperinflation, and a significant burden of foreign debt (Grinberg 2008;Valença 1998). The high foreign debt in Brazil posed a significant challenge in repaying loans, which, in turn, led to reduced investment and growth, resulting in elevated inflation rates. During this period, a clear positive correlation between foreign debt and inflation emerged, signifying that high levels of foreign debt were linked to soaring inflation. The economic crisis in Brazil during the 1980s and early 1990s was primarily driven by the simultaneous issues of high inflation and foreign debt, coupled with a lack of fiscal discipline. The government’s implementation of multiple economic stabilization plans aimed to address these challenges, but these efforts were largely ineffective in quelling hyperinflation. The second period commenced with Brazil adopting the Real Plan in 1994. This initiative was designed to stabilize the economy and control inflation, and it included the introduction of a new currency, the Brazilian real (BRL), in the same year (Barata 2019). The program achieved partial success, leading to a substantial reduction in inflation, decreasing from 2076% in 1994 to 3.2% in 2020, as depicted in (Figure 1b). However, the percentage of foreign debt to GNI remained a crucial variable during this period, with fluctuations ranging from 16% to 47% of GNI. On the other hand, Brazil managed to lower its inflation rates from the mid-1990s until the end of the study period, resulting in a
Economies 2024,12, 18 4 of 20 more stable economy and bringing some relief to the country. The relationship between foreign debt and inflation following the implementation of the Real Plan became less straightforward, with some years showing a positive correlation between the two variables while others showed no clear relationship. For instance, in 2015 and 2016, there was an increase in foreign debt as a percentage of GNI, but inflation remained stable. Similarly, in 2017 and 2018, foreign debt as a percentage of GNI rose again, but inflation remained low. In 2019 and 2020, foreign debt as a percentage of GNI continued to rise while inflation rates experienced a slight decline. During the second period, the implementation of the Real Plan marked a relative success in curbing inflation and achieving economic stability in Brazil. It ushered in a period of stability and attracted higher levels of foreign investment. Concurrently, Brazil initiated a phase of economic openness to international trade, which significantly fueled its economic growth. Notably, the increased export of agricultural products and other commodities played a pivotal role in boosting the nation’s economy. Overall, the time series data indicate a positive correlation between foreign debt and inflation in Brazil. High foreign debt has previously been associated with high inflation rates and economic instability. However, this relationship has become less definitive in recent years. It is worth noting that other factors, such as government policies, economic growth, and international trade, also influence inflation rates. Therefore, the relationship between foreign debt and inflation in Brazil is complex. 3. Theoretical and Empirical Literature Theoretically, there are several pathways through which debt can influence inflation. The first is through an increase in government deficits and debts, which can raise a country’s overall wealth if bondholders of the new debt rule out the possibility of using future taxes to cover the deficit. In this non-Ricardian context, a rise in the nation’s wealth increases the demand for goods and services, leading to higher prices. The second channel is the crowding-out effect, whereby an increase in government budget deficit and the associated increase in public debt raises interest rates, depressing private domestic investment, reducing the country’s future productive capacity, decreasing aggregate supply, and driving up prices. Finally, the monetization of debt can be the third channel, where an increase in government debt may lead to an increase in seigniorage, allowing the government to balance its budget. This can increase the amount of printed money, propping up demand and increasing prices (Barth et al. 1987;Davig and Leeper 2007). Earlier studies, such as those by Catão and Terrones (2005), Bajo-Rubio et al. (2006), and Lin and Chu (2013), provide evidence that inflation is not uniquely a monetary issue but also a fiscal concern due to large fiscal deficits and excessive public debt. Thus, coordinating monetary and fiscal policy is crucial in controlling inflation, and fiscal policy is increasingly recognized as an essential factor in determining inflation. The Fiscal Theory of the Price Level, which asserts that debt plays a pivotal role in determining the price level, has been a subject of extensive debate and has spurred a substantial body of literature, such as studies by Cochrane (2005), Gordon and Leeper (2002), Cochrane (2001) and Sims (1994). Additionally, some studies suggest that an active monetary policy with a passive fiscal policy can stabilize prices. An independent central bank with a clear inflation target and the ability to adjust interest rates can effectively stabilize the economy and control inflation. These studies argue that the effects of debt management policy on the economy can be offset by changes in other policies, such as monetary policy (Assadi 2015;Davig and Leeper 2007,2009;Leeper 1991). Regarding empirical research, we observed that the bulk of the empirical literature predominantly focuses on examining the connection between inflation and public debt rather than foreign debt, such as the work of Aimola and Odhiambo (2022) in Gambia, Aimola and Odhiambo (2021a) in Ghana, Aimola and Odhiambo (2021b) in Nigeria, Van Bon (2015) across various developing countries, and the comprehensive study by Reinhart and Rogoff (2010) which covers 44 countries. Recently, a growing number of studies
Economies 2024,12, 18 5 of 20 have probed the intricate relationship between foreign debt and inflation using a variety of econometric methodologies and covering different countries and periods, with inconclusive findings. Notably, research conducted by Enongene and Etape (2023) in Cameroon, Sharaf and Shahen (2023) in Sudan, Gathendu (2021) in Kenya, Uganda, and Tanzania, and the collective work of Arisa (2020) and Mweni et al. (2016) in Kenya, have explored this nuanced association. While a positive relationship between foreign debt and inflation is supported by some studies (e.g., Choong et al. 2010;Mweni et al. 2016;Arisa 2020), others indicate a negative relationship (e.g., Karakaplan 2009;Sharaf and Shahen 2023), and a third category of studies asserts no discernible relationship (e.g., Essien et al. 2016;Aimola and Odhiambo 2021b). These empirical studies share a common feature where they assume that inflation responds symmetrically to changes in foreign debt. However, recent evidence suggests that the effect of foreign debt on inflation could be asymmetric. The findings of some recent studies seem to support the asymmetric hypothesis, which indicates that positive foreign debt shocks could have a different effect on inflation than negative debt shocks (see, for example, Enongene and Etape 2023;Sharaf and Shahen 2023;Aimola and Odhiambo 2022). Table 1briefly reviews the empirical studies exploring the intricate connections between foreign debt and inflation, employing various research methodologies like ARDL bounds testing, NARDL, vector autoregression models, and regression analyses. The amalgamation of these methodologies has yielded a spectrum of results, showcasing varied conclusions, encompassing positive, negative, and inconclusive relationships. This diversity underscores the complexity of economic interactions. Additionally, these studies encompass multiple countries and timeframes, enriching our comprehension of how foreign debt and inflation interplay across different economic contexts. This breadth emphasizes the influence of contextual factors, emphasizing the need to consider diverse scenarios when formulating policies or theories related to foreign debt and its impact on inflation. Table 1shows that there is a significant research gap regarding the foreign debt– inflation nexus in Brazil. In particular, very few studies have investigated this relationship in Brazil, often within a comparative framework involving multiple countries, and these studies were published quite some time ago. Instead, the focus was on the linkage between Brazil’s foreign debt and economic growth rather than inflation (e.g., Koyuncu Çakmak and Demirhan 2020;Afonso et al. 2020). Among the few studies that examined the connection between inflation and foreign debt in Brazil, Cardoso and Fishlow (1990) focused on the mid-1980s period. At that time, Brazil had a foreign debt of more than one-third of the country’s GDP and was also facing high inflation rates. The authors argue that inflation and foreign debt are related problems with the same underlying issue. The study showed that shifting from foreign to domestic deficit finance has increased real interest rates and inflation. In another study, Koluri and Giannaros (1987) tested the monetarist view that deficits and money growth are the leading causes of inflation in Mexico and Brazil. The study findings indicate that the federal budget deficit has not significantly contributed to money growth in Brazil and Mexico. However, there is evidence of a direct impact of deficit spending on inflation in Mexico. Moreover, the research supports the idea that changes in money supply directly affect the inflation rate in both countries. Foreign debt is a significant factor in money growth in both countries, with a possible indirect effect on inflation. The study suggests that expansionary fiscal policy can lead to inflation by impacting the central bank’s monetary policy. However, the results should be interpreted cautiously due to sample size limitations. The study by Farhan and Younes (2021) is the most up-to-date research on the foreign debt–inflation nexus in Brazil. The study found that an increase in foreign debt leads to a rise in inflation rates, a persistent issue affecting the Brazilian economy and many other Latin American countries.
Economies 2024,12, 18 6 of 20 Table 1. A brief review of related Empirical studies. Study Study Period Country/Region Methodology Public Debt/ Foreign Debt Relationship in General (Enongene and Etape 2023)(1980–2020) Cameroon NARDL Foreign debt Positive (In the long run) (Sharaf and Shahen 2023)(1970–2020) Sudan ARDL bounds testing approach Foreign debt No relationship (In the long run) NARDL Negative (In the long run) (Aimola and Odhiambo 2022)(1978–2019) Gambia NARDL Public debt Positive (Aimola and Odhiambo 2021a)(1983–2018) Ghana ARDL bounds testing approach Public debt Positive (Aimola and Odhiambo 2021b)(1983–2018) Nigeria ARDL Public debt No relationship (In the short and long run) (Gathendu 2021) (1988–2018) Kenya, Uganda and Tanzania VECM Foreign debt Positive (Arisa 2020) (1993–2018) Kenya Vector auto regression model Diagnostic tests Foreign debt Positive (Mweni et al. 2016) (1972–2012) Kenya Regression model Foreign debt Positive (Essien et al. 2016) (1970–2014) Nigeria Vector Autoregressive model Granger causality test Impulse response Variance decomposition of various innovations Foreign debt No relationship (Van Bon 2015) (1990–2014) Developing Countries GMM Arellano-Bond Public debt Positive (Choong et al. 2010) (1970–2006) Malaysia Cointegration test Foreign debt Positive (Reinhart and Rogoff 2010)200 years 44 countries Examination of pertinent statistical data Public debt Positive (Emerging countries) (Karakaplan 2009) 44 years 121 countries GMM technique Public debt Negative (Advanced countries) (Kwon et al. 2009) (1963–2004) Some developing and developed countries Vector autoregression model Public debt Positive (Developing countries) - Specially indebted developing countries (Janssen et al. 2002) Past 300 years U.K. Public debt No relationship (Taghavi 2000) (1970–1997) Large European economies Hybrid cointegration analysis Vector autoregressive model Public debt Positive (In most cases in the long run) In summary, although the relationship between foreign debt and inflation has garnered growing attention, very few studies have examined this nexus in Brazil, and the existing ones were published quite a long time ago and suffer from several methodological caveats. In particular, these studies failed to consider the potential asymmetry in the inflationary effect of foreign debt, as well as the potential regime shifts in regard to this relationship that may result from the presence of structural breaks, and the current study aims to overcome these methodological limitations.
Economies 2024,12, 18 7 of 20 Consequently, a research gap exists concerning the specific relationship between foreign debt and inflation in Brazil. Further research is essential to establish a comprehensive and widely applicable understanding of how foreign debt influences inflation within the Brazilian context. Addressing this gap requires a detailed examination of the potential mechanisms through which foreign debt affects inflation, necessitating a more nuanced analysis of the dynamic nature of this relationship. Our ongoing research aims to bridge this gap by emphasizing the importance of considering structural changes and accounting for nonlinearities and asymmetry. This approach is crucial in unveiling the dynamic and multifaceted nature of the interplay between foreign debt and inflation in Brazil. 4. Data and Methods We use annual time series data from 1980 to 2020 on the consumer price index (CPI), the foreign debt stock as a % of gross national income (Xdebt), the nominal effective exchange rate (NEER), and the broad domestic money supply (M). The period under investigation is dictated by data availability. The CPI, Xdebt, and M data are obtained from the World Development Indicators. Data on the NEER come from Bruegel’s database Darvas (2021). All the variables are measured in natural logarithmic form. To estimate the impact of foreign debt, within a multivariate framework, on the price level, we use the model in Equation (1). CPIt=θ0+θ1Xdebtt+θ2Mt+θ3NEERt+εt(1) We first check the stationarity of the variables under investigation. The ARDL bounds test of cointegration validity requires that none of the series be integrated of order more than one. The order of integration of the variables is checked using the Augmented Dickey– Fuller (ADF) unit root test and the Zivot and Andrews (2002) unit root test, allowing for an endogenously determined structural break in both the intercept and the trend. After checking the stationarity property of the data, we check the nonlinearity of the variables by employing the Broock, Dechert, and Scheinkman (BDS) test developed by Broock et al. (1996). The results of the BDS test will be used to validate the use of the NARDL approach. We also use a residual-based cointegration test proposed by Gregory and Hansen (1996) that allows for a structural break in the cointegration vector. We then will incorporate a time dummy variable to represent the structural break when estimating the VECM to estimate the shortand long-run elasticities of the price level to the examined factors. Lastly, we estimate foreign debt’s symmetric and asymmetric short-run and long-run impact on inflation using linear and nonlinear ARDL models and then conduct a Markov Switching regression (MSR) as a robustness check. Foreign debt’s symmetric (linear) effect on the price level is examined using the ARDL model presented in Equation (2). ∆CPIt=α0+∑p i=1λ1i∆CPIt−i+∑q i=1λ2i∆Xdebtt−i+∑r i=1λ3i∆Mt−i+ ∑s i=1λ4i∆NEERt−1+φ1CPIt−1+φ2Xdebtt−1+φ3Mt−1+φ4NEERt−1+εt(2) where ∆ is a first difference operator, p , q , r , s are the optimal lag length based on the Schwarz Information Criterion (SIC). The short-run coefficients are estimated by presenting the ARDL model in an error correction form, as shown in Equation (3). ∆CPIt=τ0+∑p i=1τ1i∆CPIt−i+∑q i=1τ2i∆Xdebtt−i+∑r i=1τ3i∆Mt−i+ ∑s i=1τ4i∆NEERt−1+∅ECTt−1+εt(3) We use the NARDL model of Shin et al. (2014) to investigate the asymmetric impact of foreign debt on inflation. The intuition of this model is that it decomposes the foreign debt changes into negative changes Xdebt− t=∑t i=1∆Xdebt− t=∑t i=1min(Xdebti, 0) and positive changes (Xdebt+ t=∑t i=1∆Xdebt+ t=∑t i=1max(Xdebti , 0 )) . Xdebt− t and Xdebt+ t are the partial sums of the negative and positive changes in the foreign debt, respectively.
Economies 2024,12, 18 8 of 20 Equation (4) presents the NARDL formulation of the model in Equation (1). It is used to uncover an asymmetric equilibrium relationship between foreign debt and inflation within a multivariate setting by incorporating the other covariates, NEER and M. ∆CPIt=φ0+ p ∑ i=1 ω1i∆CPIt−i+ q ∑ i=1 ω2i∆Mt−i+r ∑ i=1 ω3i∆NEERt−1+s ∑ i=1 ω4i∆Xdebt+ t−i+v ∑ i=1 ω5i∆Xdebt− t−i+ ϑ1CPIt−1+ϑ2Mt−i+ϑ3NEERt−iϑ4Xdebt+ t−1+ϑ5Xdebt− t−1+εt (4) Equation (5) shows the error correction representation of the NARDL model in Equation (4) and is used to estimate the short-run asymmetric effect of foreign debt on inflation. ∆CPIt=φ1+ p ∑ i=1 η1i∆CPIt−i+ q ∑ i=1 η2i∆Mt−i+r ∑ i=1 η3i∆NEERt−1+s ∑ i=1 η4i∆Xdebt+ t−i+v ∑ i=1 η5i∆Xdebt− t−i +∅ECTt−1+εt (5) In Equations (3) and (5), the error correction term coefficient measures the speed of recovery from short-run disequilibrium in the aftermath of a shock to the long-run equilibrium path. Dynamic stability requires ∅ to have a negative sign and is less than unity. We also run a multiple structural breakpoints test of Bai and Perron (1998) to check the presence of structural breaks in the impact of NEER, M, and foreign debt on the CPI. Equation (6) presents a multiple structural breakpoints linear model with T periods and m structural breaks. CPIt=γiXdebtt+φiNEERt+ψiMt+ut(6) In which γi , φi and ψi are the regime-dependant coefficients for i= 1, . . . ., m+ 1, and ut is the error term. The number of statistically significant structural breaks, m, is determined endogenously by a sequential algorithm as proposed by Bai and Perron (1998). Finally, we estimate a nonlinear Markov Switching Regression (MSR) as a robustness check to determine if there is a regime shift in the impact of foreign debt on inflation. 5. Empirical Results Results of the ADF unit root test, presented in Table 2, show that CPI, M, and NEER are stationary at level in one of the versions of the test and non-stationary in the other versions. Table 2. Results of the ADF unit root test. CPI M NEER Xdebt At Level With Constant T-Statistic −2.5749 −3.2326 ∗∗ −2.5877 −2.3552 Prob. (0.1067) (0.0259) (0.1041) (0.1607) With Constant and Trend T-Statistic −1.8663 −2.5808 −1.9279 −2.6338 Prob. (0.6526) (0.2906) (0.6210) (0.2684) Without Constant and Trend T-Statistic −2.3888 ∗∗ −0.3375 − 2.6546 ∗∗∗ −0.0677 Prob. (0.0181) (0.5567) (0.0093) (0.6539) At First Difference With Constant T-Statistic −1.7557 −1.2856 −1.8892 − 3.9091 ∗∗∗ Prob. (0.3962) (0.6260) (0.3338) (0.0046) With Constant and Trend T-Statistic −2.4705 −2.2844 −2.5496 − 3.8752 ∗∗ Prob. (0.3401) (0.4316) (0.3042) (0.0228) Without Constant and Trend T-Statistic −1.5565 −1.1474 −1.6111 − 3.9602 ∗∗∗ Prob. (0.1111) (0.2242) (0.1001) (0.0002) **, *** indicate rejection of the null hypothesis (series is non-stationary) at the 5%, and 1% significance level, respectively. Lag length is based on SIC. p-values are in parenthesis.
Economies 2024,12, 18 15 of 20 Table 10. Cont. Variable Coefficient Std. Error z-Statistic Prob. Common LOG (SIGMA) −2.286 0.155 −14.66 0.000 Probabilities Parameters P1-C −0.591 0.723 −0.817 0.413 Mean dependent var −1.703 S.D. dependent var 9.521 S.E. of regression 0.286 Sum squared resid 2.627 Durbin–Watson stat 0.432 Log likelihood 22.41 Akaike info criterion −0.605 Schwarz criterion −0.187 Hannan–Quinn criter. −0.453 *, *** indicate statistical significance at the 10% and 1% level, respectively. However, although foreign debt has a negative impact on the CPI in both regimes, the impact is statistically significant in the first regime at a 10% significance level and not significant in the second regime. 6. Discussion This study augments the existing literature investigating the relationship between foreign debt and inflation. It does so by examining this nexus in the context of Brazil, within a multivariate framework, from 1980 to 2020. In addressing methodological concerns in previous studies, our research diverges from conventional linear assumptions and employs two nonlinear approaches: the nonlinear autoregressive distributed lag (NARDL) model and a Markov Switching Regression (MSR). Additionally, the study considers the presence of structural breaks via utilizing the Zivot and Andrews (Z–A) unit root test and incorporates a residual-based cointegration test developed by Gregory and Hansen (G–H). Moreover, the study employs a multiple structural breakpoints test by Bai and Perron (B–P). The merit of this study lies in recognizing the importance of incorporating structural breaks in time series analysis, which highlights the dynamic nature of economic relationships and emphasizes the necessity of addressing regime shifts. This significance stems from the limitation of the conventional unit root tests, which do not account for structural breaks in time series data, resulting in bias that weakens the ability to detect a false unit root null hypothesis. We employed the Z–A unit root test to address this issue, revealing that most variables exhibited stationarity at their levels with one structural break around 1995. This corresponds to the period following the introduction of the Real Plan in Brazil in 1994, an initiative aimed at stabilizing the economy and controlling inflation. Another contribution of our study concerning structural breaks is the utilization of the Gregory–Hansen test, which examines the presence of cointegration in the context of structural breaks, verifying its existence between the price level and other variables, with a structural break identified in 1999. The results obtained from the linear ARDL model suggest that the influence of foreign debt on inflation in Brazil has no statistical significance. These findings are consistent with Sharaf and Shahen’s (2023) study, which found no statistically significant effect of foreign debt on inflation in Sudan over the period from 1970 to 2020. Similarly, these findings align with the research conducted by Aimola and Odhiambo (2021b), focusing on the relationship between public debt and inflation in Nigeria, spanning from 1983 to 2018. The findings of another study conducted by Essien et al. (2016) corroborate and fortify the conclusions that utilizing the linear ARDL model in the analysis may not detect a statistically significant inflationary effect for foreign debt. To consider the possible asymmetry in how foreign debt could affect inflation, we employed a nonlinear ARDL model. The rationale for using this nonlinear model is the
Economies 2024,12, 18 16 of 20 recognition that the link between foreign debt and inflation might not exhibit symmetry and could depend on whether the foreign debt shock is in a positive or negative direction. The results of the NARDL model reveal that positive foreign debt shocks have a statistically significant negative impact on inflation in the short run. This relationship remains negative and significant in the long run as well. This finding contradicts the conventional belief that excessive foreign debt can lead to inflation through currency devaluation and increased import demand. Nevertheless, these results coincide with the research conducted by Sharaf and Shahen (2023), demonstrating that debt negatively affects inflation in Sudan when the NARDL model technique is utilized. Likewise, Karakaplan (2009) also indicated that debt has a negative effect on inflation in certain advanced countries. Furthermore, these results are consistent with the study conducted by Bleaney (1996), which suggested that debt has a negative influence on inflation during particular periods. The negative effect of foreign debt on inflation can be explained by various economic mechanisms, notably the rise of debt service costs associated with the mounting foreign debt. In response, governments may employ monetary strategies, such as tightening the money supply, to mitigate the inflationary impact. Additionally, the accumulation of foreign debt can influence exchange rates and, if managed effectively, contribute to inflation control. Fiscal measures, such as austerity, are also deployed to ensure the proper management of the debt burden while averting inflationary pressures. These outcomes underscore the active role of governments in mitigating the potential inflationary consequences of increasing foreign debt through a fusion of monetary and fiscal approaches. The findings derived from the ARDL and NARDL models present contrasting perspectives regarding the influence of debt on inflation. Findings of the linear ARDL model imply an absence of a statistically significant long-term impact of foreign debt on inflation, aligning with studies such as Aimola and Odhiambo (2021b) and Essien et al. (2016) on Nigeria and Janssen et al. (2002) on U.K., whose findings also suggest no significant association between debt and inflation. Conversely, the NARDL model results reveal a statistically significant long-term relationship between foreign debt shocks and inflation. These NARDL findings align with several empirical studies emphasizing asymmetric effects in adjusting economic variables, particularly regarding critical elements like debt and inflation. Noteworthy research endeavors, including studies by Enongene and Etape (2023) on Cameroon, Sharaf and Shahen (2023) on Sudan, and Aimola and Odhiambo (2022) on the Gambia, further substantiate and bolster these conclusions and support the asymmetric hypothesis which indicates that positive foreign debt shocks could have a different effect on inflation than negative debt shocks. Using the nonlinear ARDL approach often leads to distinct results compared to the linear models in these studies. For example, previous investigations using a linear ARDL approach did not reveal significant long-term impacts of foreign debt on inflation in Sudan until the study conducted by Sharaf and Shahen (2023), where the ARDL approach suggested an absence of a statistically significant impact from foreign debt on long-term inflation. In contrast, the findings from the NARDL model imply that positive and negative shocks in foreign debt wield a statistically significant influence on long-term inflation. Consequently, applying the nonlinear ARDL method in their research revealed the asymmetric effects of alterations in Sudan’s foreign debt on inflation from 1970 to 2020, presenting critical supplementary insights in our research. To sum up, the use of asymmetry analysis in the current study reveals a significant impact of foreign debt shocks on inflation, underscoring the importance of accounting for nonlinear dynamics. The research suggests that changes in foreign debt levels can gradually reduce inflationary effects over time. Furthermore, the study demonstrates that the relationship between foreign debt and inflation is nonlinear, indicating that the magnitude and direction of the shock can influence how foreign debt affects inflation. These conflicting results underscore the complexity and nuances in comprehending the
Economies 2024,12, 18 17 of 20 intricate relationship between debt and inflation, emphasizing the necessity for more detailed analyses and considerations of multifaceted factors in future research. On the other hand, the findings of both linear (symmetric) and nonlinear (asymmetric) ARDL models, for both short-term and long-term periods, concerning domestic money supply and nominal effective exchange rate, reveal that domestic money supply (M) has a significant positive effect on inflation, while the nominal effective exchange rate (NEER) has a statistically significant negative effect on inflation. The results related to the impact of M on inflation align with the Quantity Theory of Money, a fundamental concept in monetary economics that suggests that an expansion of the money supply causes inflation. This correlation is supported by multiple empirical investigations, including studies conducted by Gharehgozli and Lee (2022), Helmy (2021) in Egypt, Abate (2020) in Ethiopia, and Benati (2021) across 27 countries. For instance, Gharehgozli and Lee (2022) illustrated that the lockdowns in 2020, coupled with expansive fiscal and monetary policies, triggered an unprecedented surge in the money supply. This excess of money supply subsequently contributed to the rise in the core inflation rate during and after COVID-19. Similarly, the results for the NEER correspond to economic theory, suggesting that a stronger currency can reduce inflation by lowering import costs and enhancing the competitive position of local producers. These findings are also supported by empirical evidence, such as the studies conducted by Sharaf and Shahen (2023) and Baharumshah et al. (2017) in Sudan. Both studies employed a NARDL model and concluded that a stronger currency has a negative and statistically significant impact on inflation, implying that it can reduce inflationary pressures in Sudan. However, our findings contrast with those of Sharaf et al. (2023) in Jordan, who found that a nominal depreciation of the Jordanian Dinar led to increased shortand long-term inflation rates spanning from 1970 to 2020. A distinctive aspect of our study, focusing on structural breaks, involves the application of the Bai–Perron multiple breakpoint test to identify such breaks in different periods. The test detected structural breaks in 1989 and 1997, revealing varying effects of the variables on the price level within distinct sub-periods. These structural breaks indicate significant relationship changes between the variables and the inflation during those years. As a result, these findings provide insight into shifts in economic conditions in Brazil during those specific periods. Notably, the economic landscape in Brazil showed marked differences in the distinct years of 1989 and 1997, which represented pivotal moments in the nation’s economic history. In 1989, Brazil grappled with hyperinflation and underwent a significant political transition. Conversely, in 1997, the introduction of the Real Plan marked a shift towards relative economic stability and the initiation of trade liberalization in the country. The current study is not free from limitations. One limitation is that the data used cover the period 1980–2020 annually, which might pose a challenge due to the relatively small sample size. Nonetheless, a sample size of about 40 observations is acceptable in empirical research. Also, it is worth mentioning that our use of annual data, instead of quarterly data, for instance, and the choice of the study period are dictated by data availability for all the variables included in the analysis. 7. Conclusions This study investigated the relationship between foreign debt and inflation in Brazil from 1980 to 2020 while addressing the methodological limitations of earlier studies. Analyzing structural breaks and implementing nonlinear models uncovers pivotal insights into the nature of the foreign debt–inflation nexus. While linear models suggest no foreign debt impact on inflation, nonlinear models counter this, revealing a substantial negative effect from positive foreign debt shocks, thus disrupting established beliefs. These revelations underscore economic links’ intricate and dynamic nature, stressing the importance of acknowledging regime shifts and asymmetry in economic analyses. Additionally, the research pinpoints significant years like 1989 and 1997 as pivotal economic milestones,
Economies 2024,12, 18 18 of 20 emphasizing the Brazilian government’s proactive role in managing foreign debt levels to stave off potential inflationary consequences. Ultimately, this study enriches our comprehension of the intricate interplay between foreign debt, inflation, and other economic factors, offering indispensable guidance for policymakers navigating economic transformations. In conclusion, these findings corroborate earlier research, illustrating the multifaceted impact of foreign debt on inflation. We expect these findings to aid policymakers in Brazil in designing more effective strategies for managing inflation and foreign debt levels by providing a better understanding of how the two variables are interrelated. Author Contributions: Conceptualization, M.F.S., B.A.B. and A.M.S.; methodology, M.F.S., B.A.B. and A.M.S.; software, M.F.S., B.A.B. and A.M.S.; validation, M.F.S., B.A.B. and A.M.S.; formal analysis, M.F.S., B.A.B. and A.M.S.; investigation, M.F.S., B.A.B. and A.M.S.; resources, M.F.S., B.A.B. and A.M.S.; data curation, M.F.S., B.A.B. and A.M.S.; writing—original draft preparation, M.F.S., B.A.B. and A.M.S.; writing—review and editing, M.F.S., B.A.B. and A.M.S.; visualization, M.F.S., B.A.B. and A.M.S.; supervision, M.F.S. and B.A.B.; project administration, M.F.S. and B.A.B.; funding acquisition, M.F.S. and B.A.B. All authors have read and agreed to the published version of the manuscript. Funding: This work was supported and funded by the Deanship of Scientific Research at Imam Mohammad Ibn Saud Islamic University (IMSIU) (grant number IMSIU-RP23016). Data Availability Statement: The CPI, Xdebt, and M data are obtained from the World Development Indicators. Data on the NEER come from Bruegel’s database Darvas (2021). Acknowledgments: The authors would like to thank the assigned editor and the anonymous reviewers for the constructive comments and suggestions that significantly improved the paper. Conflicts of Interest: The authors declare no conflict of interest. Notes 1Aimola and Odhiambo (2020) offer a systematic review of the related literature. 2 M denotes the broad domestic money supply; E.R. is the nominal effective exchange rate; P is the consumer price index. All these variables are expressed in natural logarithmic form. 3The “cruzeiro” was Brazil’s former currency before it was replaced by the Brazilian real (BRL) in 1994. 4DEBT (+)and DEBT (−)are the partial sums of the positive and negative changes in the foreign debt, respectively. 5 CUSUM refers to the cumulative sum of recursive residuals, and CUSUMSQ is the cumulative sum of squares of recursive residuals. References Abate, Tadesse. 2020. Macro-economic Determinants of Recent Inflation in Ethiopia. Journal of World Economic Research 9: 136. [CrossRef] Afonso, António, Sergio Gadelha, and Agatha Silva. 2020. Public Debt and Economic Growth in Brazil. SSRN Electronic Journal, 1–39. [CrossRef] Aimola, Akingbade U., and Nicholas M. Odhiambo. 2020. Public Debt and Inflation: A Review of International Literature. Folia Oeconomica Stetinensia 20: 9–24. [CrossRef] Aimola, Akingbade U., and Nicholas M. Odhiambo. 2021a. Public debt and inflation: Empirical evidence from Ghana. Development Studies Research 8: 1872392. [CrossRef] Aimola, Akingbade U., and Nicholas M. Odhiambo. 2021b. Public debt and inflation nexus in Nigeria: An ARDL bounds test approach. Cogent Economics & Finance 9: 1921905. [CrossRef] Aimola, Akingbade U., and Nicholas M. Odhiambo. 2022. Is the effect of public debt on inflation symmetric or asymmetric? Evidence from the Gambia. Croatian Review of Economic, Business and Social Statistics 8: 41–57. [CrossRef] Arisa, Gibson Marienga. 2020. Impact of External Debt on Inflation and Exchange Rate in Kenya. Master’s thesis, Kenyatta University, Nairobi, Kenya. Available online: https://ir-library.ku.ac.ke/handle/123456789/21755 (accessed on 15 January 2023). Assadi, Marzieh. 2015. Monetary and Fiscal Policy Interactions: National and International Empirical Evidence. Glasgow: University of Glasgow. Available online: https://theses.gla.ac.uk/6796/ (accessed on 15 January 2023). Baharumshah, Ahmad Zubaidi, Abdalla Sirag, and Norashidah Nor. 2017. Asymmetric Exchange Rate Pass-through in Sudan: Does Inflation React Differently during Periods of Currency Depreciation? African Development Review 29: 446–57. [CrossRef] Bai, Jushan, and Pierre Perron. 1998. Estimating and Testing Linear Models with Multiple Structural Changes. Econometrica 66: 47. [CrossRef] Bai, Jushan, and Pierre Perron. 2003. Critical Values for Multiple Structural Change Tests. The Econometrics Journal 6: 72–78. [CrossRef]
Economies 2024,12, 18 19 of 20 Bajo-Rubio, Oscar, Carmen Diaz-Roldan, and Vicente Esteve. 2006. Is the budget deficit sustainable when fiscal policy is nonlinear? The case of Spain. Journal of Macroeconomics 28: 596–608. [CrossRef] Barata, João. 2019. Chapter 7 Brazil: Taking Stock of the Past Couple of Decades. In Foreign Exchange Intervention in Inflation Targeters in Latin America. Washington, DC: International Monetary Fund. Available online: https://www.elibrary.imf.org/display/book/97 81484375686/ch007.xml (accessed on 22 October 2023). Barth, James R., Michael D. Bradley, and Paul C. Panayotacos. 1987. Understanding International Debt Crisis. Case Western Reserve Journal of International Law 19: 31. Benati, Luca. 2021. Long-Run Evidence on the Quantity Theory of Money. Bern: Departement Volkswirtschaft, Universitaet Bern. Bethell, Luca. 2000. Politics in Brazil: From Elections without Democracy to Democracy without Citizenship. Daedalus 129: 1–27. Bleaney, Michael. 1996. Inflation and Public Debt. Australian Economic Papers, Wiley Blackwell 35: 141–55. [CrossRef] Broock, William A., JoséAlexandre Scheinkman, W. Davis Dechert, and Blake LeBaron. 1996. A test for independence based on the correlation dimension. Econometric Reviews 15: 197–235. [CrossRef] Cardoso, Eliana, and Albert Fishlow. 1990. External Debt, Budget Deficits, and Inflation. Cambridge: National Bureau of Economic Research, Inc. NBER Chapters, pp. 318–34. Available online: https://econpapers.repec.org/bookchap/nbrnberch/8948.htm (accessed on 2 April 2023). Catão, Luis A. V., and Marco E. Terrones. 2005. Fiscal deficits and inflation. Journal of Monetary Economics 52: 529–54. [CrossRef] Choong, Chee-Keong, Evan Lau, Venus Khim-Sen Liew, and Chin-Hong Puah. 2010. Does debts foster economic growth? The experience of Malaysia. International Scholars Journals 5: 1–12. Cochrane, John H. 2001. Long-Term Debt and Optimal Policy in the Fiscal Theory of the Price Level. Econometrica 69: 69–116. [CrossRef] Cochrane, John H. 2005. Money as stock. Journal of Monetary Economics 52: 501–28. [CrossRef] Darvas, Zsolt. 2021. Timely Measurement of Real Effective Exchange Rates. Bruegel|The Brussels-Based Economic Think Tank. Available online: https://www.bruegel.org/working-paper/timely-measurement-real-effective-exchange-rates (accessed on 14 March 2023). Davig, Troy, and Eric M. Leeper. 2007. Generalizing the Taylor Principle. American Economic Review 97: 607–35. [CrossRef] Davig, Troy, and Eric M. Leeper. 2009. Monetary-Fiscal Policy Interactions and Fiscal Stimulus. NBER Working Papers 15133. Cambridge: National Bureau of Economic Research, Inc. Available online: https://ideas.repec.org//p/nbr/nberwo/15133.html (accessed on 23 February 2023). Enongene, Betrand Ewane, and Felix Mejame Etape. 2023. Does External Debt Stocks Have an Asymmetric Effect on Inflation Dynamics in Cameroon? An Application of Nonlinear ARDLL. American Journal of Economics and Business Innovation 2: 17–23. [CrossRef] Essien, Sunday N., Negozi T. I. Agboegbulem, and Ogochukwu G. Onumonu. 2016. An Empirical Analysis of the Macroeconomic Impact of Public Debt in Nigeria. CBN Journal of Applied Statistics 7: 125–45. Farhan, Saadoun Hussein, and Samah A. Younes. 2021. Inflation in light of the external debt constraint in Latin American countries/Brazil as a model. Tikrit Journal of Administration and Economics Sciences 17: 218533. Available online: https: //www.iasj.net/iasj/article/218533 (accessed on 2 April 2023). Gathendu, Jane Joy Wairima. 2021. Effect of External Debt on Inflation: The case of Kenya, Tanzania and Uganda. Available online: http://hdl.handle.net/11071/12567 (accessed on 24 December 2023). Gharehgozli, Orkideh, and Sunhyung Lee. 2022. Money Supply and Inflation after COVID-19. Economies 10: 101. [CrossRef] Gordon, David, and Eric Leeper. 2002. The Price Level, the Quantity Theory of Money, and the Fiscal Theory of the Price Level. NBER Working Paper 9084. Cambridge: National Bureau of Economic Research, Inc. Available online: https://econpapers.repec.org/paper/ nbrnberwo/9084.htm (accessed on 2 April 2023). Gregory, Allan W., and Bruce E. Hansen. 1996. Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics 70: 99–126. [CrossRef] Grinberg, Nicolas. 2008. From the “Miracle” to the “Lost Decade”: Intersectoral transfers and external credit in the Brazilian economy. Brazilian Journal of Political Economy 28: 291–311. [CrossRef] Helmy, Heba. 2021. The external debt-inflation nexus in Egypt. Journal of Public Affairs—Wiley Online Library 22: e2802. [CrossRef] Janssen, Norbert, Charles Nolan, and Ryland Thomas. 2002. Money, Debt and Prices in the United Kingdom, 1705–1996. Economica 69: 461–79. [CrossRef] Karakaplan, Mustafa U˘gur. 2009. The conditional effects of external debt on inflation. Sosyal Ekonomik Ara¸stırmalar Dergisi 9: 17. Koluri, Bharat R., and Demetrios S. Giannaros. 1987. Deficit and External Debt Effects on Money and Inflation in Brazil and Mexico: Some Evidence. Eastern Economic Journal 13: 243–48. Koyuncu Çakmak, Tu˘gba, and Hüseyin Demirhan. 2020. Impact of External Debt on Economic Growth in Brazil: An ARDL Bound Testing Approach. The Journal of International Scientific Researches 5: 674985. [CrossRef] Kwon, Goohoon, Lavern McFarlane, and Wayne Robinson. 2009. Public Debt, Money Supply, and Inflation: A Cross-Country Study. IMF Staff Papers 56: 476–515. [CrossRef] Leeper, Eric M. 1991. Equilibria under ‘active’ and ‘passive’ monetary and fiscal policies. Journal of Monetary Economics 27: 129–47. [CrossRef] Lin, Hsin-Yi, and Hao-Pang Chu. 2013. Are fiscal deficits inflationary? Journal of International Money and Finance 32: 214–33. [CrossRef] Mweni, Fedrick Tsofa, Amos Njuguna, and Timothy Oketch. 2016. The Effect of External Debt on Inflation Rate in Kenya, 1972–2012. International Journal of Financial Research 7: 198. [CrossRef]
Economies 2024,12, 18 20 of 20 Pesaran, M. Hashem, Yongcheol Shin, and Richard J. Smith. 2001. Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics 16: 289–326. [CrossRef] Reinhart, Carmen M., and Kenneth S. Rogoff. 2010. Growth in a Time of Debt. American Economic Review 100: 573–78. [CrossRef] Reinhart, Carmen M., and Kenneth S. Rogoff. 2013. Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten. WP/13/266. Washington, DC: International Monetary Fund. Sharaf, Mesbah, and Abdelhalem Shahen. 2023. Does external debt drive inflation in Sudan: Evidence from symmetric and asymmetric ARDL approaches. Journal of Business and Socio-Economic Development 3: 293–307. [CrossRef] Sharaf, Mesbah, Abdelhalem Shahen, and Badr Binzaid. 2023. Estimating the Causal Relationship between External Debt and Inflation in Jordan: Evidence from an ARDL and Toda-Yamamoto Approaches. Working Paper 1641. Cairo: Economic Research Forum. Available online: https://econpapers.repec.org/paper/ergwpaper/1641.htm (accessed on 31 December 2023). Shin, Yongcheol, Byungchul Yu, and Matthew Greenwood-Nimmo. 2014. Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. In Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications. Edited by Robin C. Sickles and William C. Horrace. Berlin: Springer, pp. 281–314. [CrossRef] Sims, Christopher. 1994. A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy. Economic Theory 4: 381–99. [CrossRef] Taghavi, Majid. 2000. Debt, growth and inflation in large European economies: A vector auto-regression analysis. Journal of Evolutionary Economics 10: 159–73. [CrossRef] Valença, Márcio Moraes. 1998. The Lost Decade and the Brazilian Government’s Response in the 1990s. The Journal of Developing Areas 33: 1–52. Van Bon, Nguyen. 2015. The Relationship Between Public Debt and Inflation in Developing Countries: Empirical Evidence Based on Difference Panel GMM. Asian Journal of Empirical Research 5: 9. Zivot, Eric, and Donald W. K. Andrews. 2002. Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis. Journal of Business & Economic Statistics 20: 25–44. [CrossRef] Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.