Government Stability and Inflation Dynamics: Evidence from South Asian Nations

Investigating the impact of government stability on inflation is crucial for formulating effective economic policies that ensure sustained growth, investor confidence, and financial stability. This empirical study examines the influence of government stability on inflation in eight countries of the South Asian region using panel data from 2004 to 2022. By employing robust econometric techniques, including ordinary least squares, pooled mean group, feasible generalized least squares, Dumitrescu-Hurlin panel causality, and fully modified ordinary least squares, the analysis consistently reveals that enhanced government stability correlates with lower inflation rates, while instability leads to higher inflation. Economic growth and broad money supply help reduce inflation, whereas government consumption and domestic credit are positively associated with inflation. These findings underscore the critical role of government stability and sound economic policies in managing inflation, providing valuable insights for policymakers seeking to enhance economic stability in South Asia.