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Determining inflation as monetary or fiscal phenomenon: An empirical evidence from South Asia

Author

Listed:
  • Obaid, Shahid

    (Department of Business Administration, Sindh Madressatul Islam University, Karachi Pakistan.)

  • Baig, Mirza Aqeel

    (Economics Department, Institute of Business Management, Karachi Pakistan.)

  • Shah, Muzafar Ali

    (Department of Business Administration, Sindh Madressatul Islam University, Karachi Pakistan.)

Abstract

This paper examines the relation between monetary and fiscal indicators with rate of inflation and determine whether monetary or fiscal indicators cause and predict inflation in an economy. In order to determine this relationship, a sample of six South Asian countries are taken in this research i.e. Pakistan, Sri Lanka, Bangladesh, India, Bhutan and Nepal. Five independent variables act as factors of monetary and fiscal policies i.e. money supply, interest rate, exchange rate, government expenditure and budget deficit are included. Twenty-five years (1993-2017) historic data is incorporated to estimate regression and granger causality. Various econometric techniques and statistical tools are used to refine the model. Findings suggest that money supply, interest rate and exchange rate are significant. However, government expenditure and budget deficit reported insignificant. Further, inflation granger causes exchange rate and broad money granger causes inflation. It is extracted from granger causality that inflation predicts exchange rate and money supply predicts the rate of inflation.

Suggested Citation

  • Obaid, Shahid & Baig, Mirza Aqeel & Shah, Muzafar Ali, 2020. "Determining inflation as monetary or fiscal phenomenon: An empirical evidence from South Asia," BizEcons Quarterly, Strides Educational Foundation, vol. 6, pages 22-48.
    • Handle: RePEc:ris:buecqu:0012
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    1. Hicham Ayad, 2020. "Money Supply, Inflation and Economic Growth: Co-Integration and Causality Analysis," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 65(2), pages 29-45, August.

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    More about this item

    Keywords

    Monetary policy; Fiscal policy; Inflation;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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