Are fiscal deficits inflationary in African countries? A new evidence from an asymmetric cointegration analysis

This paper investigates relationship between fiscal deficits and inflation in a sample of twelve African countries using quarterly series, covering the period from 1980:1 to 2018:4. It uses the Enders and Siklos (2001) technique that accommodates asymmetric adjustments between the series, which suits African countries with imperfect and underdeveloped financial market systems where adjustments may be sporadic and contingent. The results indicate that there is a long-run relationship between fiscal deficits and inflation in all the countries and fiscal deficit is inflationary, which indicates importance of fiscal consolidation. It is also found that adjustments between the series are asymmetric in these countries.