Abstract
<title>Abstract</title> <p> Introduction: This study investigates the macroeconomic channels through which public debt servicing, short-term public debt, and exchange rate dynamics influenced inflation in Ghana from 1993 to 2024. While existing literature frequently treats public debt as a monolithic aggregate under the Fiscal Theory of the Price Level (FTPL), this paper decouples cash-flow debt servicing from debt stocks to examine their distinct impacts within a small open economy. Method: This study employs an Autoregressive Distributed Lag (ARDL) bounds-testing framework, augmented by a Nonlinear ARDL (NARDL) asymmetric error-correction model and Zivot-Andrews unit root tests to endogenously account for historical structural breaks. Results: The empirical results indicate that stable long-run cointegration is not robustly established at conventional significance levels, likely reflecting the limited sample size (N = 32) and prominent structural discontinuities such as the 2007 currency redenomination and the 2022–2023 debt crisis. However, highly significant error correction terms demonstrate underlying mean-reverting behavior. Public debt servicing exhibits a negative long-run association with inflation, supporting an aggregate demand crowding-out channel over direct deficit monetization. Furthermore, exchange rate depreciation and appreciation both carry positive long-run associations with inflation, with Wald tests supporting a symmetric pass-through relationship, while real GDP growth consistently dampens inflation. Discussion: This study contributes to the literature by extending the analytical window through the recent Domestic Debt Exchange Program (DDEP) era and introducing robust, sign-preserving transformations for negative GDP growth observations. The findings suggest that policy coordination must carefully balance debt relief initiatives with demand management, as reduced debt-servicing obligations may release fiscal space and stimulate aggregate demand. Additionally, the results emphasize that exchange rate stabilization remains a critical policy instrument for mitigating persistent domestic inflationary pressures. <bold>JEL Classification:</bold> E31; E62; H63; C22; O55 </p>