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Deficits and inflation: an open economy model of the United States

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  • Sohrab Abizadeh
  • Mahmood Yousefi

Abstract

The deficit debate is a recurring theme in academic and political circles. The controversy is over the effect of deficits on inflation and interest rates. The existing body of empirical evidence does not resolve the controversy. This paper focuses on the inflationary impact of deficits. The model used is derived from a comprehensive IS-LM analysis which incorporates a foreign trade sector and a general price (adoptive expectation) adjustment mechanism. We test the model using time series data for the United states. From our results we conclude that NIA deficits have no significant bearing on the rate of inflation.

Suggested Citation

  • Sohrab Abizadeh & Mahmood Yousefi, 1998. "Deficits and inflation: an open economy model of the United States," Applied Economics, Taylor & Francis Journals, vol. 30(10), pages 1307-1316.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:10:p:1307-1316
    DOI: 10.1080/000368498324922
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    1. Turnovsky,Stephen J., 1977. "Macroeconomic Analysis and Stabilization Policy," Cambridge Books, Cambridge University Press, number 9780521291873, January.
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    Cited by:

    1. Hossein-Ali Fakher, 2016. "The Empirical Relationship between Fiscal Deficits and Inflation (Case Study: Selected Asian Economies)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(4), pages 551-579, Autumn.
    2. Emmanuel C Anoruo, 2003. "An Empirical Investigation Into the Budget Deficit ‐ Inflation Nexus in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 71(2), pages 146-154, June.
    3. Alemu Minyahil, 2020. "Are Fiscal Deficits Really Inflationary? An Investigation Into Ethiopia’s Experience," HOLISTICA – Journal of Business and Public Administration, Sciendo, vol. 11(3), pages 11-24, December.

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