Date of Award
8-1-2025
Degree Name
Doctor of Philosophy
Department
Economics
First Advisor
Becsi, Zsolt
Abstract
Is fiscal dominance a threat to financial stability? This dissertation examines how fiscal dominance threatens banking-sector stability in frontier economies, focusing on Sub-Saharan Africa. A dynamic stochastic general equilibrium (DSGE) model with macro-financial linkages, calibrated to Ghana, shows that a one-standard-deviation, money-financed fiscal shock raises inflation by 0.1 percentage points, widens credit spreads by 10 basis points, reduces bank net worth by 0.4 percent within two quarters, and increases the bank leverage ratio by 0.8 percent, illustrating how fiscal dominance amplifies financial vulnerabilities by weakening bank balance sheets and tightening financial conditions. Empirically, Bayesian vector autoregression (BVAR) and local-projection techniques applied to Ghanaian data from 2006 to 2022 show that inflation shocks linked to monetary financing initially stimulate private credit but eventually drive up borrowing costs. As credit becomes more expensive, borrowers face growing repayment challenges, leading to a rise in non-performing loans. This deterioration in loan performance erodes banks’ capital adequacy and weakens their resilience to future shocks over a 20- to 24-month horizon. Fixed-effects panel regressions across Ghana, Kenya, Nigeria, and South Africa (1998–2020) show that a one-percent increase in the public-debt-to-GDP ratio is associated with a 0.34-percent rise in NPLs, while rapid money growth and exchange-rate depreciation further erode loan quality. These findings underscore the systemic risks that fiscal dominance poses to financial stability and highlight the need for credible fiscal–monetary policy coordination, strengthened macro-prudential regulation, and structural reforms to safeguard banking systems and support sustainable economic development in frontier economies.
Access
This dissertation is only available for download to the SIUC community. Current SIUC affiliates may also access this paper off campus by searching Dissertations & Theses @ Southern Illinois University Carbondale from ProQuest. Others should contact the interlibrary loan department of your local library or contact ProQuest's Dissertation Express service.