An Analysis the Impact of Selected Macroeconomic Variables on Inflation in the Libyan Economy During the Period 1990-2024: An ARDL Approach

Abstract

This study analyses the impact of certain macroeconomic variables on inflation in the Libyan economy during the period 1990-2025 using an ARDL model. The study drew on annual data comprising the inflation rate (dependent variable), government expenditure, money supply, and the official exchange rate (dependent variables). The results the revealed the existence of a long run cointegration relationship between the inflation and the aforementioned explanatory variables, this relationship was significant and statistically valid. It also showed that government expenditure has an inverse effect on the inflecting manifestations of fiscal dominance, and that the effects of the money supply and the official exchange rate were positive on the inflation rate, although the exchange rate had a particularly strong influence, reflecting the Libyan economy’s heavy reliance on the external sector for the supply of most goods. Based on these findings, the study recommends coordination between the various types of economic policies: fiscal, monetary and trade to achieve balance and stability in the Libyan economy.