Impact of external debt on inflation in Guinea: the moderating role of imports

Purpose The objective of the study is to examine the impact of external debt on inflation by highlighting the moderating role of imports in the external debt–inflation nexus. Design/methodology/approach The autoregressive distributed lag model is employed to show short-run versus long-run dynamics using data from Guinea for the period of 1986–2021. Findings The findings reveal that imports negatively affect inflation in the short run, while (public) external debt and imports drive long-run inflation. Furthermore, imports positively moderate the external debt–inflation nexus in the long run. The threshold of imports above which external debt has a positive effect on inflation is roughly 34 (% of GDP). Research limitations/implications Although this research reports interesting findings, the small sample size represents a structural limitation of our findings. Another limitation is data quality, a common problem in research. Originality/value The contribution is threefold. First, Guinea is an African country where inflation is relatively higher. In general, there is a lack of studies analyzing simultaneously the effect of external debt and trade on inflation, and statements concerning the role of imports on inflation remain conjectural. To fill this gap, this research simultaneously highlights their impacts on inflation. Second, for the sensitivity analysis, this research analyzes the effects of overall trade and public external debt on inflation. Third, to our knowledge, it is the first time a study explores the moderating role of imports in the external debt–inflation nexus.