Effects of Government Debt on Monetary Policy Strategy in Tanzania
Fiscal dominance; SVAR; Monetary policy; Tanzania
Abstract
This paper examines the fiscal dominance hypothesis in Tanzania by exploring
the relationship between the monetary base and the government debt using
monthly data from 2003:1 to 2019:12. Results from formal statistical tests indicate
no evidence of a long-run relationship between the variables. Structural vector
autoregressive model is thus estimated to analyse the short-run dynamics. The
findings point to a positive and statistically significant impact of government
debt on monetary base. The findings identifies political phenomenon that
before the fourth phase government (2003-2005), monetary policy witnessed
relatively intensive fiscal dominance as compared to the fourth phase (2005-
2015) and fifth phase government (2015-2019). However, in comparison with
the fourth phase government, findings suggest that during the first four years
of the fifth phase government, monetary policy encountered a relatively high
fiscal influence, partly attributed to implementation of huge development
projects and reduction in foreign financing in the government budget. The
identified fiscal dominance for the sample period, implies a subordinated
monetary policy, compromising on Bank of Tanzania’s primary objective of
price stability.
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Copyright (c) 2024 African Journal of Accounting and Social Science Studies (AJASSS)
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