The Impact of Inflation on Economic Growth in Tanzania during 1995-2017”

Shibanda,, Jane (2020) The Impact of Inflation on Economic Growth in Tanzania during 1995-2017”. Masters thesis, The Open University of Tanzania.

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Abstract

The main purpose of this study is to empirically assess the impact of inflation on economic growth in Tanzania from 1995 to 2017. Inflation is one of the fundamental objectives of macroeconomic policies in Tanzania. Specifically, the study assessed the empirical evidence for significance of inflation on economic growth in Tanzania as first hypothesis. Different statistical tests conducted revealed that inflation is significant to economic growth since the tests displayed that these two variables affect one another. Secondly, the study examined the hypothesis that inflation and economic growth has positive relationship so different econometric tests like correlation matrix test, cointegration test, Vector Autoregressive test were employed. The results revealed the following; first, there was strong positive and negative relationship between inflation and economic growth, secondly, the cointegration test showed that inflation has short run relationship with economic growth, thirdly, the Vector autoregression causality test results exposed that there was positive and negative causality relationship between inflation and economic growth, given the results above, then we reject the null hypothesis that Inflation and Economic Growth have positive relationship and accept the alternative that inflation have both positive and negative relationship on economic growth. Hence the study concludes that inflation has significant impact on economic growth in Tanzania also inflation is the sensitive macroeconomic variable to the economic growth. The study recommends that before making any inflation targeting policy, the Government should build a dynamic model that can weigh the short run costs against the long run benefits of such policies.

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