Analyzing The Dynamic Nature Of The Economic Factors: An Application of VAR Model and IRF

Abstract

This paper uses vector autoregressive model and impulse response function to assess the external debt sustainability of Sudan. It aims to analyse the dynamic and long term effects among economic indicators and capture response of economic variable to a shock in another variable. Also, to determine the factors that impact a nation’s struggle to maintain debt at sustainable levels. A precise list of indicators of indebtedness was inserted in the model. Results showed that indicators of indebtedness are predictable using measures of repayment capacity. In contrast, the domestic repayment capacities are not possible to be predicted, using indicators of indebtedness; and significantly affects the indebtedness of Sudan, hence, Policies to enhance the use of domestic resources to repay debts are recommended. As cost based indicators of indebtedness, significantly affect the exports growth, they should be maintained at a sustainable level.

Keywords: VAR, IRF, External debt, Repayment capacity,Economic Growth, Sudan