Fiscal Deficits and Inflation
IMF Working Papers, April 1, 2003
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- Fiscal Deficits and Inflation
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Bibliographic details
- Authors: Luis Catão, Marco Terrones
- Published: April 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451848700.001
Authors and Publication
- By Luis Catão, Marco Terrones
- April 1, 2003
- IMF Working Papers, Working Paper No. 2003/065
- Issue: 065
- Volume: 2003
- Pages: 33
- DOI: https://doi.org/10.5089/9781451848700.001
- ISBN: 9781451848700
- ISSN: 1018-5941
- Stock No: WPIEA0652003
Research Question and Context
- Macroeconomic theory postulates that fiscal deficits cause inflation.
- Empirical research prior to this paper had limited success in uncovering a consistent deficit–inflation relationship.
- This paper reexamines the deficit–inflation link using broader data and a new modeling approach that incorporates two key features of the theory.
Methodology
- Models inflation as nonlinearly related to fiscal deficits through the inflation tax base.
- Estimates the relationship as intrinsically dynamic.
- Uses panel techniques that explicitly distinguish between short- and long-run effects of fiscal deficits.
- Empirical coverage: 107 countries over 1960-2001.
Key Findings
- Results show a strong positive association between deficits and inflation among:
- High-inflation country group.
- Developing country group.
- No strong positive association found among low-inflation advanced economies.
- The nonlinear modeling through the inflation tax base and the dynamic panel approach are central to uncovering these patterns.
Subjects and Keywords (as listed)
- Subjects: Budget planning and preparation, Exchange rate arrangements, Foreign exchange, Government debt management, Inflation, Oil prices, Prices, Public financial management (PFM)
- Keywords: Budget planning and preparation, deficit-inflation relationship, Developing Countries, exchange rate, Exchange rate arrangements, Fiscal Policy, Government debt management, Inflation, inflation country, Macroeconomic Stabilization, narrow money, oil price inflation, Oil prices, PMG estimate, PMG estimator, WP
Access and Formats
- Available on the IMF eLibrary.
- Format listed: Chicago citation example provided.
- Notice: "This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate."
Content based on the IMF web landing page for "Fiscal Deficits and Inflation" (IMF Working Papers 2003, 065).
Content in this bundle
- Fiscal Deficits and Inflation - WP/03/65