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The Empirical Relationship between Fiscal Deficits and Inflation (Case Study: Selected Asian Economies)

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  • Hossein-Ali Fakher

    (Department of Environmental Economics, Faculty of Environment and Energy, Science and Research branch, Islamic Azad University, Tehran, Iran.)

Abstract

The relationship between public sector deficits and inflation is one of the important and controversial issues in the academic literature as well as in economic policy field. On the other hand, a major objective of macroeconomic policies is to foster economic growth and to keep inflation on a low level. So keeping the price stability plays an important role in determining the growth rate of output. The main objective of this paper is to investigate the effects of budget deficit, broad money supply, real GDP, import price index, interest rate and exchange rate on inflation (price deflator) in selected Asian economics, namely China, Japan, Korea, India, Taiwan, and Singapore in the period of 1993-2013. By applying the Pooled Mean Group estimation-based error correction model and the panel differenced (General Method of Moment) Arellano-Bond estimator, the study finds out budget deficit, real GDP and exchange rate are statistically significant determinants of inflation in both methods of estimation.

Suggested Citation

  • Hossein-Ali Fakher, 2016. "The Empirical Relationship between Fiscal Deficits and Inflation (Case Study: Selected Asian Economies)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(4), pages 551-579, Autumn.
    • Handle: RePEc:eut:journl:v:20:y:2016:i:4:p:551
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    References listed on IDEAS

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    2. Jaka Sriyana & Jiyao Joanna Ge, 2019. "Asymmetric responses of fiscal policy to the inflation rate in Indonesia," Economics Bulletin, AccessEcon, vol. 39(3), pages 1701-1713.

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