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Do fiscal deficits cause inflation? Evidence from Suriname

Author

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  • Gavin Ooft

    (Suriname Economic Oversight Board,Paramaribo, Suriname)

Abstract

This study examines the impact of the fiscal balance on headline inflation in Suriname. Historically, Suriname coped with multiple episodes of high inflation. A structural vector autoregression (SVAR) framework with annual data from 1961 to 2022 is used to assess the transmission of fiscal shocks to consumer prices. In addition, the analysis takes into account commodity prices, money supply, the exchange rate, and output growth. The empirical analysis reveals that exchange-rate shocks are the primary driver of inflation. Energy commodity price shocks also induce price pressures, in contrast to non-energy commodity price shocks. Fiscal shocks do not affect inflation directly. Nonetheless, there is evidence that these shocks do affect the exchange rate substantively. The results of this study emphasize the importance of exchange-rate stability, while fiscal discipline can alleviate exchange-rate and inflationary pressures.

Suggested Citation

  • Gavin Ooft, 2025. "Do fiscal deficits cause inflation? Evidence from Suriname," Public Sector Economics, Institute of Public Finance, vol. 49(1), pages 153-179.
    • Handle: RePEc:ipf:psejou:v:49:y:2025:i:1:p:153-179
    DOI: 10.3326/pse.49.1.6
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    More about this item

    Keywords

    inflation; fiscal balance; money supply; SVAR;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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