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Is Inflation Fiscally Determined?

Author

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  • Lamia Bazzaoui

    (Graduate School of Economics and Management, Tohoku University, Sendai 980-8576, Japan)

  • Jun Nagayasu

    (Graduate School of Economics and Management, Tohoku University, Sendai 980-8576, Japan)

Abstract

This paper examines the relationship between fiscal policy and inflation for 44 countries, from 1960 to 2020. The study was conducted using a panel VAR approach while accounting for the difference in monetary policy frameworks and the levels of fiscal space across countries. Results suggest that budget deficits are less likely to cause inflation when monetary policy is based on inflation targeting. In contrast, they are inflationary in the group of countries with a poorly structured monetary policy (such as partially dollarized Latin American economies).

Suggested Citation

  • Lamia Bazzaoui & Jun Nagayasu, 2021. "Is Inflation Fiscally Determined?," Sustainability, MDPI, vol. 13(20), pages 1-26, October.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:20:p:11306-:d:655296
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    More about this item

    Keywords

    inflation; fiscal policy; monetary policy; public debt; panel VAR GMM;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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