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Inflation and Federal Budget Deficits: some Empirical Results

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  • Ali F. Darrat

    (University of Kentucky)

Abstract

This article examines empirically the potential link between federal budget Abstract deficits and inflation in the post-1960 period. Based on established economic theory, and contrary to most previous empirical studies, the article estimates a model in which monetary and other financial assets (government bonds) are treated equally. The empirical results suggest that both monetary growth and federal deficits exert a significant influence on inflation during the 1960s and 1970s. The results further indicate that, relative to monetary growth, federal deficits have had a stronger and more reliable impact on inflation. Thus, along with restraints in monetary expansions, restrictive fiscal policy is also found to be an important anti-inflationary measure.

Suggested Citation

  • Ali F. Darrat, 1985. "Inflation and Federal Budget Deficits: some Empirical Results," Public Finance Review, , vol. 13(2), pages 206-215, April.
    • Handle: RePEc:sae:pubfin:v:13:y:1985:i:2:p:206-215
    DOI: 10.1177/109114218501300205
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    References listed on IDEAS

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    Cited by:

    1. K. H. Brown & M. Yousefi, 1996. "Deficits, inflation and central banks' independence: evidence from developing nations," Applied Economics Letters, Taylor & Francis Journals, vol. 3(8), pages 505-509.
    2. Khan, Abdul Qayyum Khan & Khattak, Naeem Ur Rehman Khattak & Hussain, Anwar Hussain, 2008. "Inter-dependencies and Causality in the Macroeconomic Variables: Evidence from Pakistan (1960-2005). Sarhad J. Agric. 24 (1): 199-205," MPRA Paper 42034, University Library of Munich, Germany.
    3. Darrat, Ali F & Glascock, John L, 1993. "On the Real Estate Market Efficiency," The Journal of Real Estate Finance and Economics, Springer, vol. 7(1), pages 55-72, July.
    4. Bilin Neyapti, 2003. "Budget Deficits and Inflation: The Roles of Central Bank Independence and Financial Market Development," Contemporary Economic Policy, Western Economic Association International, vol. 21(4), pages 458-475, October.
    5. Maissa Elmrabet & Boulila Ghazi, 2018. "Causality deficit-inflation : wavelet transform," Working Papers hal-01941464, HAL.
    6. Lin, Hsin-Yi & Chu, Hao-Pang, 2013. "Are fiscal deficits inflationary?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 214-233.

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