Volume 50, Issue 3 (2025)
Bank Domestic Debt Financing and its Effect on the Malawian Economy
(Pages 307-329)
Author(s)
Thomson Kumwenda1,*, Ronald Mangani1, Jacob Mazalale1 and Exley Silumbu1
1Department of Economics, University of Malawi, Chancellor College, P.O. Box 280, Zomba, Malawi
Abstract:
This paperexamines Malawi’s business cycles and banks’ asset allocation strategies. The developing nation’s banking sector is incorporated into a Bayesian DGSE model using 2004–2020 Malawi data. We extended the model by Gerali et al. (2010) by introducing a public debt accumulation channel and fiscal sector to the model. Financial intermediation in the model comprises household and corporate loans, deposit mobilisation, and active public debt financing in a cash-constrained central government treasury. The findings of this paper are very crucial to policy makers as the analysis indicates that banking sector shocks from public debt financing explains short- and long-term output changes in Malawi. This research shows that domestic banking sector public debt shocks affect investments by 5%–15%, consumer loans by 2%–10%, corporate loans by 1%–5%, bank capital by 5%–15%, and bank financing by 1%–5%. The study supports the theory of domestic debt crowding-out.
Keywords:
DSGE, DSA, Bayesian, Domestic Debt, Banking, Monetary Policy.
JEL CLASSIFICATION:
E51, E52, E58, E61, E62
Cite this paper:
Thomson Kumwenda, Ronald Mangani, Jacob Mazalale and Exley Silumbu, Bank Domestic Debt Financing and its Effect on the Malawian Economy, The Journal of Social, Political and Economic Studies. Volume 50, Issue 3, Year 2025 | PP. 307-329. https://thejspes.com/vol50-a25
© 2025 The Author(s). Published by 'The Journal of Social, Political and Economic Studies'.
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