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Budget Deficit and Macroeconomics Fundamentals: The case of Azerbaijan

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  • Kahnim Farajova

    (Alexander Technological Educational Institute (ATEI) of Thessaloniki, 57400, Thessaloniki, P.O. Box: 14, Greece)

Abstract

In recent years, the emergence of rising budget deficit is the main reason forcing economists to investigate the reasons for changes in fiscal balances. The purpose of the paper is to investigate the relationship between budget deficit and macroeconomic fundamentals using data from Azerbaijan. The empirical analysis applies ARDL Cointegration methodology in conjunction with Granger causality tests to provide evidence for both the long and short run dynamics between the variables involved in the analysis. Using the Error Correction specification, there was found evidence of long-run causality running from current account, real interest rate, GDP, inflation and exchange rate to budget deficit. There was also found evidence of short-run Granger causal effects running from current account and real interest rate towards budget deficit and a rather weak causal effect from inflation to budget deficit. However, there is no short – run causality running from interest rate to budget deficit.

Suggested Citation

  • Kahnim Farajova, 2011. "Budget Deficit and Macroeconomics Fundamentals: The case of Azerbaijan," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 4(2), pages 143-158, August.
    • Handle: RePEc:tei:journl:v:4:y:2011:i:2:p:143-158
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    File URL: http://ijbesar.teiemt.gr/docs/volume4_issue2/budget_deficit.pdf
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    References listed on IDEAS

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    1. Emma Galli & Fabio Padovano, 2005. "Sustainability and Determinants of Italian Public Deficits before and after Maastricht," CESifo Working Paper Series 1391, CESifo.
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    Cited by:

    1. Betty Annan & William Bekoe & Edward Nketiah-Amponsah, 2013. "Determinants of Tax Evasion in Ghana: 1970-2010," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 6(3), pages 97-121, December.
    2. Bernardin Senadza & Godson Korbla Aloryito, 2016. "The twin deficits hypothesis: Evidence from Ghana," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 9(3), pages 55-62, December.
    3. Ayesha Mushtaq & Khalid Zaman, 2013. "Macroeconomic Factors Affecting Budget Deficit in Pakistan: A Time Series Analysis," Oeconomics of Knowledge, Saphira Publishing House, vol. 5(4), pages 17-33, October.
    4. Niftiyev, Ibrahim, 2020. "Determinants of the Agricultural Exports in Azerbaijan," EconStor Preprints 226347, ZBW - Leibniz Information Centre for Economics.

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    More about this item

    Keywords

    Budget deficit; Fiscal policy; Cointegration methodology; Error correction model;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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