Public debt and monetary policy nexus: empirical evidence from Africa

Abstract

Purpose The aim of the study is to investigate the relationship between monetary policy and public debt sustainability in Sub-Saharan Africa (SSA). Design/methodology/approach For the econometrics estimations, we adopted the two-step system generalized methods of movement and panel data from 2000 to 2022 on 26 SSA economies. Findings According to the results, we found that monetary policy has a significant favourable effect on public debt. This means that, specifically, tightening monetary policy leads to a significant reduction in public debt levels. Originality/value The study adopted the SGMM model to investigate monetary policy and public debt contagion of SSA countries, which has not been extensively studied. Thus, we have identified that monetary policy tightening assists in curbing the debt level in SSA.