Effects of Government Debt on Monetary Policy Strategy in Tanzania
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Date
2022-06-30
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African Journal of Accounting and social science (AJASSS)
Abstract
This paper examines the fscal 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
fndings point to a positive and statistically signifcant impact of government
debt on monetary base. The fndings identifes political phenomenon that
before the fourth phase government (2003-2005), monetary policy witnessed
relatively intensive fscal dominance as compared to the fourth phase (2005-
2015) and ffth phase government (2015-2019). However, in comparison with
the fourth phase government, fndings suggest that during the frst four years
of the ffth phase government, monetary policy encountered a relatively high
fscal influence, partly attributed to implementation of huge development
projects and reduction in foreign fnancing in the government budget. The
identifed fscal 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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Keywords
Fiscal dominance; SVAR; Monetary policy; Tanzania