Econometric evaluation of public debt on inflation: evidence from Kosovo and North Macedonia

Abstract

The nexus between public debt and inflation has been continuously investigated, but after the pandemic, it has returned to the center of researchers' courtesy. Consequently, this research examines the influences of public debt, interest rates, trade openness, GDP growth, and foreign direct investments on inflation. The study employs secondary data from 2008 to 2021 and incorporates a mixed econometric technique such as the Ordinary Least Squares (OLS) and Arrellano-Bover/Blundell-Bond approach. The study's findings argue that public debt, interest rates, and trade openness significantly influence inflation, whereas GDP growth has a significantly negative impact. Because of the limited number of observations in the context of the research, we have not been able to evaluate the impact in the long term. The uniqueness and relevance of this research stem from its use of a combined approach, and in recent months, a continuous increase in inflation has been recorded throughout the world. The current findings and arguments inspire a productive discourse among academics, scholars, and policy-making entities.