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Inflation and Public Debt

Author

Listed:
  • José Pablo Barquero Romero

    (Banco Central de Costa Rica)

  • Kerry Loaiza Marín

    (Banco Central de Costa Rica)

Abstract

This article aims to determine if a deterioration in public finances, understood as an increase in public debt, tends to increase inflation. We study the relation between public debt, economic growth, money supply growth and inflation. To do this we follow the methodology proposed by Kwon et al. (2009), who perform a panel data estimation using a sample of net debtor countries. We find that for countries whose public debt is already high, further increases in public debt are inflationary.

Suggested Citation

  • José Pablo Barquero Romero & Kerry Loaiza Marín, 2017. "Inflation and Public Debt," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 39-94, January-J.
  • Handle: RePEc:cml:moneta:v:xxxix:y:2017:i:1:p:39-94
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    References listed on IDEAS

    as
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    3. Cochrane, John H, 2001. "Long-Term Debt and Optimal Policy in the Fiscal Theory of the Price Level," Econometrica, Econometric Society, vol. 69(1), pages 69-116, January.
    4. Catao, Luis A.V. & Terrones, Marco E., 2005. "Fiscal deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 529-554, April.
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    6. Emmanuel C Anoruo, 2003. "An Empirical Investigation Into the Budget Deficit - Inflation Nexus in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 71(2), pages 146-154, June.
    7. Ayca Tekin-Koru & Erdal Ozmen, 2003. "Budget deficits, money growth and inflation: the Turkish evidence," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 591-596.
    8. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 345-380.
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    10. Goohoon Kwon & Lavern McFarlane & Wayne Robinson, 2009. "Public Debt, Money Supply, and Inflation: A Cross-Country Study," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 476-515, August.
    11. Yemane Wolde-Rufael, 2008. "Budget deficits, money and inflation:the case of Ethiopia," Journal of Developing Areas, Tennessee State University, College of Business, vol. 42(1), pages 183-199, September.
    12. Ali Darrat, 2000. "Are budget deficits inflationary? A reconsideration of the evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 7(10), pages 633-636.
    13. George Hondroyiannis & Evangelia Papapetrou, 1997. "Are budget deficits inflationary? A cointegration approach," Applied Economics Letters, Taylor & Francis Journals, vol. 4(8), pages 493-496.
    14. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    More about this item

    Keywords

    fiscal policy; monetary policy.;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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