Munich Personal RePEc Archive

Inflation, interest rate and economic growth nexuses in SACU countries

Taderera, Christie and Runganga, Raynold and Mhaka, Simbarashe and Mishi, Syden (2021): Inflation, interest rate and economic growth nexuses in SACU countries.

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Abstract

Various theories ascertain that there is a positive relationship between inflation and interest rate. Developed and developing economies are still in search of an optimum inflation rate that increases economic growth. The SACU members has recorded low growths levels over the past years coupled with low inflation rates. This study examines the relationship between inflation rate, interest rate and economic growth in Southern African Customs Union (SACU) countries. Panel data for SACU countries covering the period 1991 to 2018 was analysed using Pooled Mean Group (PMG) estimators which are Panel Autoregressive Distributed Lag (ARDL) model, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) to enable isolating short and long run effects and for robustness.The results of the study show that inflation has a positive impact on economic growth while lending rate has a negative impact on growth in the long run. These results imply that policymakers should allow a high sustainable inflation rate in order to promote economic growth while interest rate can be used as a monetary policy instrument to achieve the desired inflation rate that will affect economic growth positively.

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