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Budget Deficit, Money Growth and Inflation: Evidence from the Colombian case


  • Ignacio Lozano

    (Banco de la República (Colombia))


Evidence of the causal long-term relationship between budget deficit, money growth and inflation in Colombia is analyzed in this paper, considering the standard (M1), the narrowest (M0-Base) and the broadest (M3) definitions of money supply. Using a vector error correction (VEC) model with quarterly data over the last 25 years, the study found a close relationship between inflation and money growth on the one hand, and between money growth and fiscal deficit, on the other. The size of the long-term parameters looks acceptable, particularly when compared to what is seen in other countries, using analogous or different techniques. The conclusion, supported by several statistical tests, is that the Sargent and Wallace hypothesis would be the most appropriate approach to understanding the dynamics of these variables.
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  • Ignacio Lozano, 2009. "Budget Deficit, Money Growth and Inflation: Evidence from the Colombian case," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 65-95, January-J.
  • Handle: RePEc:cml:moneya:v:xxii:y:2009:i:1:p:65-95

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    References listed on IDEAS

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    Cited by:

    1. Nelson Manolo Chávez Muñoz & Marcos Vera Leyton, 2014. "Evaluación de los efectos del financiamiento del déficit fiscal en la inflación. Los casos de Chile, México y Colombia," REVISTA EQUIDAD Y DESARROLLO, UNIVERSIDAD DE LA SALLE, May.
    2. Ghulam Rasool Madni, 2014. "Taxation, Fiscal Deficit and Inflation in Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(53), pages 41-60, September.
    3. Mehmet BÖLÜKBAÞ, 2016. "The Effects of Economic Policies in Turkey: An Application for the Period After 2000," Journal of Social and Administrative Sciences, KSP Journals, vol. 3(4), pages 315-322, December.
    4. repec:spr:jsecdv:v:19:y:2017:i:1:d:10.1007_s40847-017-0042-2 is not listed on IDEAS
    5. Cuma BOZKURT, 2014. "Money, Inflation and Growth Relationship: The Turkish Case," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 309-322.

    More about this item

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General


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