The impact of the budget deficit on the currency and inflation in the transition economies
AbstractThis article investigates the causal linkage between budget deficit, monetary mass and inflation in the transition economies. It is focused on the impact of public expenditures growth on money supply growth, and it does not take in account the amount of budget deficit. We test the new hypothesis that inflation is primarily attributable to public finances imbalances. In our model, the money supply growth is function of budget deficit and GDP growth rate; and inflation is a function of money supply growth and budget deficits. We find a positive relationship between monetary financing of government deficits and money base growth in the case of Albania, Bulgaria, and Romania; public finance imbalances are the main cause of money creation and inflation in these countries.
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Bibliographic InfoArticle provided by Central bank of Montenegro in its journal Journal of Central banking Theory and Practice.
Volume (Year): 1 (2012)
Issue (Month): 1 ()
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More information through EDIRC
Public finance; Budget deficit; Exchange rate; Inflation; Transition economies;
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H5 - Public Economics - - National Government Expenditures and Related Policies
- H6 - Public Economics - - National Budget, Deficit, and Debt
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