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The relationship between budget deficits and money demand: evidence from a small economy

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  • George Vamvoukas

Abstract

A considerable number of empirical studies exploring the links between budget deficits and the demand for money have led to mixed results. By using annual data of the Greek economy and previous empirical studies, this paper empirically evaluates the sensitivity and validity of the Keynesian proposition and the Ricardian equivalence hypothesis. The paper employs cointegration, ECM methodology, and several diagnostic and specification tests. The empirical findings show a significant and positive relationship between budget deficits and the demand for money, supporting the Keynesian model.

Suggested Citation

  • George Vamvoukas, 1998. "The relationship between budget deficits and money demand: evidence from a small economy," Applied Economics, Taylor & Francis Journals, vol. 30(3), pages 375-382.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:3:p:375-382
    DOI: 10.1080/000368498325895
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    Cited by:

    1. Saima Sarwar, 2015. "Revisiting Ricardian Equivalence Hypothesis (REH) For Pakistan Using Money Demand Function Approach," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 4(3), pages 154-166.
    2. Al-Jahwari, Salim Ahmed Said, 2021. "Does the Twin-Deficits doctrine apply to the Gulf Cooperation Council? A dynamic panel VAR-X model approach," MPRA Paper 111232, University Library of Munich, Germany.
    3. Amir Kia, 2006. "Economic policies and demand for money: evidence from Canada," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1389-1407.
    4. José Pablo Barquero Romero & Kerry Loaiza Marín, 2017. "Inflation and Public Debt," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 39-94, January-J.
    5. Ibrahim, Taofik, 2017. "Budget deficit-money demand nexus in Nigeria: A myth or reality?," MPRA Paper 86265, University Library of Munich, Germany, revised 09 Nov 2017.
    6. Hasanah, Erni Ummi & Sarungu, JJ. & Mulyanto, & Soesilo, AM. & Suparjito,, 2019. "The Effect of Intervening Variable towards Twin Deficit in Indonesia: The Application of Path Analysis," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(2), pages 177-184.

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