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Budget Deficits and Inflation: Evidence from Turkey

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This study attempts to investigate the presence of causality between budget deficits and inflation rate. For this purpose, Granger-causality tests are employed on monthly budget deficit and inflation data of Turkey which covers two sub-periods namely,. The results indicate a positive significant causality running from budget deficits to inflation rate during the high inflation period (1987:M1-2003:M6). This causal link disappears during the low inflation period (2005:M1-2013:M6).
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Serkan Erkam and Murat Çetinkaya, The Macrotheme Review 3(8), Fall 2014
12
The Macrotheme Review
A multidisciplinary journal of global macro trends
Budget Deficits and Inflation: Evidence from Turkey
Serkan Erkam* and Murat Çetinkaya**
* Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Turkey
** Member of the Competition Board, Turkish Competition Authority, Turkey
Abstract
This study attempts to investigate the presence of causality between budget deficits and
inflation rate. For this purpose, Granger-causality tests are employed on monthly budget
deficit and inflation data of Turkey which covers two sub-periods namely, (1987:M1-
2003:M6) and (2005:M1-2013:M6). The results indicate a positive significant causality
running from budget deficits to inflation rate during the high inflation period (1987:M1-
2003:M6). This causal link disappears during the low inflation period (2005:M1-
2013:M6).
Keywords: Inflation, Budget deficits, Granger-Causality tests.
1. Introduction
The relationship between the inflation rate and the budget deficit level is one of the most
examined issues in macroeconomics since these two are generally regarded as conventional
indicators of macroeconomic performance. Researchers encounter a vast theoretical and
empirical literature related to the linkage between the dynamics of the budget deficits and the
inflation rate. Hence, the causality running from budget deficits to inflation is easily found
throughout the literature.
This paper aims to evaluate the validity of this causal link by using Turkish data. For this
purpose, the next section reviews the related theoretical and empirical literature. Afterwards,
empirical framework and estimation results are summarized respectively. Finally, the last section
concludes.
2. Theoretical Framework
The classical explanation of inflation essentially refers to the classical view of quantity theory of
money which suggests two basic propositions. According to the first proposition which is also
known as classical dichotomy, a permanent increase in the money stock does not change the level
of output and the velocity of money in the long run. On the other hand, the second proposition
reveals a proportional relation between the rate of inflation and the growth rate of money, which
implies that a permanent increase in money growth leads to an equal increase in the rate of
inflation in the long run.
Following classical economists, Milton Friedman the founder of monetarism presents a similar
description relying on the modern version of quantity theory and states that Inflation is always
Serkan Erkam and Murat Çetinkaya, The Macrotheme Review 3(8), Fall 2014
13
and everywhere a monetary phenomenon” (Friedman 1970:24). Thus, according to the monetarist
framework, budget deficits are considered to be a source of inflation only to the extent that they
are monetized.
Later on mainstream theoretical studies started to emphasize the role of fiscal variables,
especially the budget deficits, on price level determination. This part of the literature begins with
the well-recognized work of Sargent and Wallace (1981), which highlights the importance of
fiscal and monetary policy coordination while ensuring price stability. According to Sargent and
Wallace (1981), the monetary authority's control over inflation might be much more limited than
anticipated due to the inter-temporal budget constraint of the government. In other words, the
sustainability of budget deficits may require money growth which in turn converts inflation to a
fiscally-driven monetary phenomenon.
Finally, more recent studies such as Woodford (1994, 1995, 1996) and Sims (1994, 1997) lead to
a new theory of price determination which is also known as fiscal theory of price level (FTPL).
They argue that money creation may not be the single channel through which the budget deficits
cause inflation. According to FTPL, in a non-Ricardian world where fiscal policy is the dominant
regime, the nexus between the budget deficits and inflation mainly stems from the wealth effects
of bond financed budget deficits. Thereby, monetary authority’s purpose of debt monetization is
likely to be in charge in a monetary dominant Ricardian regime which is a norm for the quantity
theory of money.
As a result, theoretical framework indicates that budget deficit-inflation causality is consistent
with FTPL while deficit-money-inflation causal sequence is checking for Sargent-Wallace
hypothesis.
3. Overview of the Empirical Literature
Despite the enormous number of studies that focus on the causal relationship between budget
deficits and inflation, it is possible to briefly clarify them by using some salient aspects
1
.
First of all, most of these studies use time series data and employ procedures like OLS,
cointegration, causality tests, ECMs and VAR. Among these studies Hamburger and Zwick
(1981), Ahking and Miller (1985) and Darrat (1985) utilize US data and find that government
deficit, money growth and inflation are causally related only for certain sub-periods. Only,
Dwyer (1982) finds no impact between these variables for US data.
Not only Dwyer (1982) but also King and Plosser (1985), Giannaros and Kolluri (1985), Karras
(1994), Abizadeh and Yousefi (1998), Komulainen and Pirtilla (2002), Tekin-Koru and Ozmen
(2003), Grauwe and Polan (2005), Altintas et al. (2008), Rubio et al. (2009), Mukhtar and
Zakaria (2010) Mehdi and Reza (2011) and Georgantopoulus and Tsamis (2011) clearly find no
connection between the variables in question for different samples including both developed and
developing countries.
De Haan and Zelhorst (1990) collect data from 17 developing countries over the period of 1961
1985, and use VAR estimation to reveal the correlation between budget deficits and inflation.
Researchers emphasize that budget deficits inflation causality is majorly valid in high inflation
periods. Later on, this benchmark finding is supported by several studies like Fischer et al.
(2002), Loungani and Swagel (2001), Catao and Terrones (2005), Domac and Yucel (2005) and
1
The studies sampling just Turkey are shown in italics.
Serkan Erkam and Murat Çetinkaya, The Macrotheme Review 3(8), Fall 2014
14
Lin and Chu (2013) which have definite differences both in methodology and sample selection.
Apart from these studies, Neyapti (2003) attributes this causality largely to low degrees of central
bank independence and financial market development, while Kwon et al. (2009) refers to the role
of public indebtedness.
Furthermore, Chaudhary and Ahmad (1995), Hondroyiannis and Papapetrou (1997), Metin
(1998), Vieira (2000), Alavirad (2003), Solomon & Wet (2004), Kesbic et al. (2004), Narayan et
al. (2006), Patience and Augustine (2008), Davarcioglu-Ozaktas (2008), Lozano (2009), Chimobi
& Igwe (2010) and Makochekanwa (2011) find a strong link between budget deficits and
inflation wholly due to the massive monetization which is in line with Sargent and Wallace
Hypothesis. Also, this finding is confirmed by Akcay et al. (1996), Ozgun (2000) and Dogru and
Senturk (2013) only in the long run.
Finally, Choudhary and Parai (1991), Hondroyiannis and Papapetrou (1994), Shabbir and Ahmed
(1994), Metin (1995), Insel (1995), Lim and Papi (1997), Cotarelli et al. (1998), Favero and
Spinelli (1999), Onwioduokit (1999), Darrat (2000), Fratianni and Spinelli (2001), Piontkivsky et
al. (2001), Telatar (2002), Gunaydin (2004), Barisik and Kesikoglu (2006), Cetintas (2005),
Agha and Khan (2006), Wolde-Rufael (2008), Oktayer (2010), Habibullah et al. (2011), Nawaz
et al. (2012), Dogru (2014) and Jalil et al. (2014) find that an increase in budget deficit would
lead to a rise in inflation rate directly as FTPL asserts.
4. Econometric Framework, Data and Results
The causal link between the budget deficit and inflation in Turkish economy is investigated for
the sub-periods (1987M1-2004M12) and (2005M1-2013M6) within the frame of Granger-
causality methodology
2
. The inflation rate series (inf) used in this study are computed from the
monthly CPI indices (1987=100) obtained from the CBRT (Central Bank of the Republic of
Turkey) Electronic Data Distribution System. As a proxy for the budget deficit, we use the ratio
of budget revenues to the budget expenditures (bb) which are obtained from the monthly public
account bulletin of the Ministry of Finance General Directorate of Accounting. Both of the series
are seasonally adjusted by applying Census X12 procedure.
Table 1. Descriptive Statistics of Variables
bb
(1987:M01 - 2004:M12)
inf
(1987:M01 - 2004:M12)
inf
(2005:M01 - 2013:M06)
Mean
0.769266
0.040299
0.006697
Median
0.780733
0.040724
0.006724
Maximum
1.041420
0.231754
0.028190
Minimum
0.482634
-0.014393
-0.004357
Std. Dev.
0.109043
0.023992
0.005287
Skewness
-0.088661
2.633116
0.632098
Kurtosis
2.540165
22.14993
4.727507
JB
2.186026
3550.076
19.47551
# of Obs.
216
216
102
2
The selection of sub-periods majorly influenced by three factors. First of all, the context of consumer price index
has changed by the end of 2004. Secondly, Turkish government started to secure primary budget surpluses by the
year 2005. Lastly, the first sub-period reflects high and chronic inflation episode while the second one represents
vice versa. Last two factors could be verified by the descriptive statistics shown in Table 1.
Serkan Erkam and Murat Çetinkaya, The Macrotheme Review 3(8), Fall 2014
15
Prior to causality analysis a couple of stationarity tests (ADF and PP) are carried out in order to
eliminate the need of long run relationship. Also, the possibility of utilizing dummy variables for
the structural break points in VAR models requires to perform Zivot Andrews stationarity test.
The results of the stationarity analysis with regard to the Augmented Dickey Fuller and Philips-
Perron unit root tests are reported in Table 2. As shown in Table 2, both series are found to be
stationary at 1% significance level in either sub-periods with one exception
3
.
Table 2. Unit root test results
VARIABLES
ADF
PP
bb (1987:M01 - 2004:M12)
-3.936700a (0)
-3.874155a(3)
bb (2005:M01 - 2013:M06)
-3.209455b (2)
-8.526192a(6)
inf (1987:M01 - 2004:M12)
-8.079847a (0)
-7.978866a(2)
inf (2005:M01 - 2013:M06)
-9.117654a (0)
-9.081638a(7)
Critical value 1% : -3.46
Critical value 5% : -2.87
Critical value 10% : -2.57
Notes: (i) The parentheses indicate the appropriate lag lengths for the ADF regressions and the
appropriate bandwidths for the PP regressions. The lags are determined by Schwarz information
criteria (SIC) (ii) a, b and c denote 1, 5 and 10 % levels of statistical significance, respectively.
Since the period of analysis covers 1994, 2001 and 2008 crisis together with the stability
programs, the stationarity analysis should be performed by using an appropriate methodology that
takes into consideration the possible structural breaks. Accordingly, beside ADF and PP unit root
tests, Zivot Andrews (1992) method is applied to test the null of unit root against the alternative
hypothesis asserting the stationarity of the series with an endogenously determined one-time
break. Within three models of ZA methodology, Model A and Model B allow for a change in
intercept and trend respectively, while Model C permits a shift both in intercept and trend. The
models have the following forms,
(Model A)       

   (1)
(Model B)       

   (2)
(Model C)
       

   (3)
where the DUt(λ) is a dummy variable that defines a mean shift in intercept at time TB, while
DTt(λ)is the corresponding trend shift dummy variable. DUt(λ) = 1 if t˃TB and zero otherwise.
On the other hand, DTt(λ) = T-TB if t˃TB and zero otherwise. The null of unit root is rejected if
α is statistically significant. The results of the ZA unit root test is presented in Table 3.
3
The budget deficit series are stationary at 5% significance level for the second sub-period (2005M1-2013M6).
Serkan Erkam and Murat Çetinkaya, The Macrotheme Review 3(8), Fall 2014
16
Table 3. Zivot Andrews Test Results
(1987:M01 - 2004:M12)
Variables
Model A
Model B
Model C
t-stat
TB
t-stat
TB
t-stat
TB
bb
-5.945a
2000:M08
-6.041a
2002:M04
-6.234a
1999:M01
inf
-9.891a
2002:M02
-10.120a
1997:M05
-10.311a
1994:M05
(2005:M01 - 2013M6)
Variables
Model A
Model B
Model C
t-stat
TB
t-stat
TB
t-stat
TB
bb
-10.284a
2010:M07
-9.691a
2012:M02
-11.037a
2011:M01
inf
-6.172a
2008:M11
-5.685a
2010:M12
-6.100a
2008:M11
Critical value %1 : -5.43
Critical value %1 : -4.93
Critical value %1 : -5.57
Notes: (i) a, b and c denote 1, 5 and 10 % levels of statistical significance, respectively.
Table 3 indicates that either budget balance and inflation rate series are stationary at 1%
significance level with regard to Model A, B and C in both sub-periods. Furthermore, it could be
seen that the structural breaks for the series coincide to the crisis periods as expected pre-
analysis.
The final step of the estimation methodology used in this study is to investigate the relationship
between the budget deficits and inflation through a Granger non-causality analysis as both of
these variables are stationary at level. Accordingly, inflation and budget deficit series are
subsequently exploited within the p-th order vector autoregressive [VAR (p)] framework for the
Granger non-causality analysis which is proposed by Granger (1969).

 
 

    (4)
  
 
 
   (5)
In the single equations of the above [VAR (p)] model which are estimated by ordinary least
squares separately, Granger non-causality hypotheses are tested at lags 1 to 12. Granger non-
causality tests are based on the null hypotheses of H0: β1=β2=…..=βi=0 in equation (4) and H0:
δ1= δ 2=…..= δ i=0 in equation (5). The rejection of the null hypothesis in equation (4) means that
budget deficits does not Granger-cause inflation, which is accepted as an evidence for the causal
link running from budget deficits to inflation.
Optimal lag length (p) for the VAR model and Granger-causality analysis is determined by
means of Akaike Information Criteria (AIC), Schwarz Criteria (SC), Hannan-Quinn Criteria
(HQ) and LM serial correlation tests which are presented in Table 4 and 5.
Serkan Erkam and Murat Çetinkaya, The Macrotheme Review 3(8), Fall 2014
17
Table 4. Optimal Lag Length Determination (1987:M01 - 2004:M12)
Lag
AIC
SC
HQ
LM
1
-8.618545
-8.455892
-8.552749
19.39095
2
-8.595007
-8.367293
-8.502892
39.91677
3
-8.571672
-8.278897
-8.453240
1.684725
4
-8.539398
-8.181561
-8.394646
10.28118
5
-8.619580
-8.196682
-8.448510
5.764107
6
-8.617069
-8.129110
-8.419681
5.488672
7
-8.616490
-8.063470
-8.392783
1.487000
8
-8.597031
-7.978950
-8.347006
3.549042
9
-8.563798
-7.880656
-8.287455
10.00255
10
-8.536625
-7.788422
-8.233963
5.238732
11
-8.510365
-7.697100
-8.181384
24.98200
12
-8.494128
-7.615802
-8.138829
9.086380
Notes: i) Bold figures in AIC, SC and HQ columns stand for the optimal length. ii) Bold figures
in LM columns stands for no serial correlation.
Table 5. Optimal Lag Length Determination (2005:M01 - 2013:M06)
Lag
AIC
SC
HQ
LM
1
-9.492386
-9.270181*
-9.402780*
5.914820
2
-9.528890
-9.195582
-9.394481
0.643042
3
-9.531008*
-9.086597
-9.351796
9.687413
4
-9.493179
-8.937666
-9.269163
1.731778
5
-9.495145
-8.828529
-9.226326
2.816304
6
-9.431178
-8.653459
-9.117556
2.958331
7
-9.361267
-8.472446
-9.002842
1.443653
8
-9.300600
-8.300676
-8.897372
4.285704
9
-9.253134
-8.142108
-8.805103
0.678944
10
-9.322969
-8.100840
-8.830135
4.350174
11
-9.275573
-7.942341
-8.737936
2.511196
12
-9.368967
-7.924632
-8.786526
5.520092
Notes: i) Bold figures in AIC, SC and HQ columns stand for the optimal length. ii) Bold figures
in LM columns stands for no serial correlation.
In addition to the selection criteria, LM test has to indicate no serial correlation at the determined
lag length. Accordingly, for the first sub-period (1987M1-2004M12) optimal lag lengths are 1
and 5. On the other hand, for the second period (2005M1-2013M6) there is only one optimal lag
length which is equal to 1, as the lag length indicated by AIC fails from serial correlation test.
Estimates of the [VAR (p)] inflation models for two sub-periods are presented in Table 6. The
estimates for the first sub-period (1987M1-2004M12) are quite better. Impulse dummies for crisis
periods (1994 and 2001) are significant at 1% significance level. Also models are overall
significant with relatively high F test values (86.25941 and 34.14294) and adjusted R2 (0.614441
and 0.654443). The estimates for the second sub-period are quite weak, as the inertia in the
inflation dynamics of Turkey is eliminated because of the significant increase in credibility and
decline in inflationary expectations. Nevertheless, the VAR model we used for this period is
overall significant at 1% level as the F test value is equal to (6.937408).
Serkan Erkam and Murat Çetinkaya, The Macrotheme Review 3(8), Fall 2014
18
Table 6. Estimates of [VAR (p)] Inflation Models
(1987:M01 - 2004:M12)
(2005:M01 - 2013:M06)
Model 1 (lag = 1)
Model 1 (lag = 5)
Model 1 (lag = 1)
Dependent Variable
inf
inf
inf
c
-0.004818
-0.010227
0.001475
inf (-1)
0.499156a
0.442611a
0.046436
inf (-2)
0.029766
inf (-3)
0.014409
inf (-4)
-0.058822
inf (-5)
0.231912a
bb (-1)
0.031321a
0.024562
0.005111
bb (-2)
0.011846
bb (-3)
-0.005849
bb (-4)
-0.021556
bb (-5)
0.021035
D94
0.190241a
0.186582a
D01
0.042260a
0.045235a
D11
0.021949a
R2
0.621647
0.674190
0.176656
Adj. R2
0.614441
0.654443
0.151192
F-stat.
86.25941a
34.14294a
6.937408a
Notes: i) a, b and c denote 1, 5 and 10 % levels of statistical significance, respectively. ii) D94,
D01 and D11 dummies stand for eliminating outlier effects stem from crisis periods.
Finally results for Granger-causality tests are presented in Table 7. Although the Granger-
causality analysis is performed for 1 to 12 lags, Table 7 just reports the results at the lags which
are chosen by appropriate selection criteria.
Table 7. Granger Causality Test Results
H0: Budget Deficits Does Not Granger-Cause Inflation (1987:M01 - 2004:M12)
Lag 1
11.08080a
Lag 5
11.73915b
H0: Budget Deficits Does Not Granger-Cause Inflation (2005:M01 - 2013:M06)
Lag 1
0.997359
Notes: i) a, b and c denote 1, 5 and 10 % levels of statistical significance, respectively. ii) The
above statistics are obtained from the Granger causality block exogeneity Wald tests. iv) Two
different lags are provided for the first period since AIC, SC, HQ and LM values do not indicate
one lag.
The results indicate a significant causality running from budget deficits to inflation rate during
the high inflation period (1987:M1-2003:M6). This causal link disappears during the low
inflation period (2005:M1-2013:M6). This finding is in line with several studies like De Haan
and Zelhorst (1990), Fischer et al. (2002), Loungani and Swagel (2001), Catao and Terrones
(2005), Domac and Yucel (2005) and Lin and Chu (2013). Correspondingly, the decline in
budget deficits during the second sub-period underpin reaching and sustaining a disinflationary
economic environment. This fact affirms the fiscal policy implications proposed by former
studies like Metin (1995) and Günaydın (2004).
Serkan Erkam and Murat Çetinkaya, The Macrotheme Review 3(8), Fall 2014
19
5. Conclusion
This study re-examines a well-known causal relationship between budget deficits and inflation
for Turkey in two different sub-periods. Following the justification of sub-period choice the
causal link in question was tested by using VAR methodology and Granger non-causality
procedures. Non-causality tests confirmed the causality running from budget deficits to inflation
for the first sub-period in which the average inflation is relatively high. This finding disappeared
when the second sub-period with low average inflation is analyzed. These results could be
attributed to the strong fiscal stabilization policies pursued in the Turkish economy aftermath of
2001 crisis.
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... deficit so as to lessen its effect on the current account and lending interest rates. Such actions should focus at increasing Uganda's tax revenue base by employing efficient and effective tax collection mechanisms. Government should therefore redouble efforts expended in fighting tax evasion and corruption that weaken its tax collection programme.Erkam and Cetinkaya (2014) examined the causality between budget deficits and inflation rate for Turkey in two different sub-periods, viz: (1987:M 1 -2003:M 6 ) and (2005:M 1 :2013:M 6 ). Following the justification of sub-period choice the causal link in question was tested by employing VAR methodology and Granger non-causality techniques. Non-causality tests co ...
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This study assessed the impact of deficit financing on selected macroeconomic variables in Nigeria for the period 1986-2018. Specifically, this study sought to: (i) examine the influence of deficit financing [(measured by external source of deficit financing (EXSDF) and non-bank source of deficit financing (NBSDF)] on real gross domestic product, (ii) ascertain the effect of EXSDF and NBSDF on gross domestic product per capita, and (iii) investigate the impact of EXSDF and NBSDF on foreign exchange rate, and (iv) assess the effect of EXSDF and NBSDF on interest rate. This study adopted ex-post facto design. Preliminary tests were carried out using Augmented Dickey-Fuller to ascertain stationarity of the data so as to forestall obtaining spurious regression results, as well as normality test (descriptive statistics) to determine how well distributed the variables were. Ordinary Least Squares (OLS) method was used to estimate the variables. Empirical decisions were based on a 5% level of significance. This study discovered as follows that: (a) EXSDF had a negative and significant impact on real GDP, but NBSDF had a positive and significant impact on real GDP as explained by the negative coefficient value (-0.25) of the explanatory variable (EXSDF). (b) EXSDF exerted a negative and significant influence on GDP per capita), but NBSDF exerted a positive and significant influence on GDPC; (c) EXSDF had a positive and significant effect on foreign exchange rate (EXR). Also, NBSDF had a positive and significant effect on EXR, and (d) EXSDF had a negative and significant impact on interest rate (INTR), but NBSDF had a positive and significant impact on INTR. The implication of the findings was that neither deficit financing improved macroeconomic performance of Nigeria's economy nor stabilized it and therefore could not be used to forecast improvement or slowdown in economic growth in Nigeria within the sampled period. This situation could be attributed to ineffective fiscal policy implementations and lack of budget discipline. In conclusion deficit financing remained a veritable means of enhancing revenue profile of the federal/State governments and macroeconomic performance of Nigeria's economy. Based on the findings, this study recommended that deficit financing in Nigeria should be focused on the productive sectors of the economy. In addition, government must adopt fiscal adjustment mechanism that enhances income generation through improved taxes rather than borrowing to finance deficits, among others.
... Doğru (2014) determined that the budget deficit and inflation rate are cointegrated in the long run, and the budget deficit inflation is the Granger cause of the short run. Erkam and Çetinkaya (2014), a causality relationship from budget deficit to inflation was determined between January 1987 and December 2004. This causality relationship was not found in the low inflation period between January 2005 and December 2013. ...
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Bütçe açığı, enflasyon ve döviz kuru arasındaki ilişki makroekonomik istikrar hedefleyen Türkiye açısından oldukça önemlidir. Bu noktadan hareketle, bu üç makroekonomik değişken arasındaki ilişkinin incelenmesi çalışmanın ana konusunu oluşturmaktadır. Bu amaçla çalışmada, Ocak 2006 - Aralık 2017 tarihleri arasındaki 144 adet aylık gözlemden oluşan bütçe açığı, enflasyon ve reel döviz kuru verileri kullanarak ekonometrik analiz gerçekleştirilmektedir. Ekonometrik analiz uygulanırken öncelikle değişkenlerin birim kök testlerinin analizi yapılmakta ve ardından Granger nedensellik testi analizi uygulanmaktadır. Değişkenler arasındaki dinamik ilişkileri ortaya çıkarmak amacıyla, etki tepki fonksiyonları ve varyans ayrıştırma yöntemleri kullanılmaktadır. Çalışmada kullanılan analizlerin sonucuna göre, reel döviz kurundan bütçe açığına ve enflasyondan bütçe açığına doğru çift taraflı Granger nedensellik ilişkisi tespit edilirken döviz kuru ile enflasyon arasında nedensellik tespit edilememiştir. Aralarında Granger nedenselliği bulunan bütçe açığı ile enflasyon ve bütçe açığı ile reel döviz arasında, değişkenlerde meydana gelebilecek şokların kendileri ile birbirleri üzerindeki etkilerini ortaya koyan bulgular elde edilmiştir. Çalışmanın kapsadığı dönem olan 2006-2017 tarihleri arasında, hem küresel finansal piyasalardaki genişleme ile birlikte gelişmekte olan ülkelere sermaye girişinin artması ve USDTRY kur oynaklığının azalması, hem de ülkemizde uygulanan enflasyon hedeflemesi para politikasının istikrarlı bir şekilde uygulanması özellikle tüketici enflasyon oranları ile reel döviz kuru arasındaki nedensellik ilişkisinin tespit edilememesinin nedenleri olarak gösterilebilir.
... Although the conventional economic wisdom is not explicit on the period in which the causality occurs among fiscal deficit, interest rate and inflation, however the issues surrounding the direction and the period of causality among fiscal deficit, interest rate and inflation are of great importance for effective policy formulation. Validating the theoretical view with datasets to produce empirical evidence which are great importance for policy developments, numerous studies (see Şahin, 2019;Nwakobi, Echekoba & Ananwude, 2018;Nwakoby, Okaro & Ananwude, 2016;Tiwari, Bolat & Koçbulut, 2015;Erkam & Çetinkaya, 2014;Jalil, Tariq & Bibi, 2014;Koyuncu, 2014;Odionye & Uma 2013, among others) have investigated the direction of causality, pairing either fiscal deficit and interest rate, fiscal deficit and inflation or interest rate and inflation though without combining the three variables and even with varied outcomes. While most, if not many, of these studies concentrate on investigating the direction of causality between the variables, the period in which the causality occurs has not attracted research interest especially in developing countries like Nigeria. ...
... Quant au biais inflationniste des déficits, la littérature est formellement divisée. Certains pensent que les pressions budgétaires alimentent notablement les poussées d'inflation en monétisant les importants déficits et l'inflation élevée est presque toujours un phénomène budgétaire voir (Bruno & Fischer, 1990;Erkam, 2014;Neyapti, 2003). Cette causalité est vérifiée dans les travaux de (Habibullah et al, 2011) qui ont déterminé un rapport soutenu dans treize pays asiatiques. ...
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The financing of Algerian budget deficits, between 2000 and 2019, was made by appealing to the monetary authority, through devaluations, refinancing of banks and unconventional financing since Law n° 17-10. Not to mention the FRR and NLEG. This study explains these financings and tries to detect their inflationary consequences. The evolution of the balance sheet size of the Bank of Algeria, the money base and the money supply, as well as the CPI, suggests inflationary effects of devaluations, combined with direct or triangular monetization of deficits.
... The relationship between budget deficits and inflation has attracted increasing academic interest across the globe and the results of their research outputs have continued to be mixed and inconclusive (Afonso & Jalles, 2019;Chukwu, 2013;Kaur, 2019;Lin & Chu, 2013). While some studies have established that it is the fiscal deficit that precedes and explains inflation ( Catão & Terrone, 2005;Erkam & Çetinkaya, 2014;Lin & Chu, 2013;Maio Bulawayo & Seshamani, 2018;Oladipo & Akinbobola, 2011;Olubiyi & Bolarinwa, 2018;Onwioduokit, 1999;Ozurumba, 2012;Ssebulime & Edward, 2019), some other studies indicate the causal link running from inflation to fiscal deficit (Ishaq & Mohsin, 2015;Ndanshau, 2012;Ogunmuyiwa, 2008). Also, some empirical studies have established a two-way causality between the two variables (Chimobi & Igwe;Onwiduokit, 1999;Oseni & Sanni, 2016). ...
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This paper investigates the symmetric and asymmetric relationship between fiscal deficits and inflation in Nigeria within the context of bootstrap simulations with leverage adjustments using the quarterly frequency data from 1981Q1 to 2016Q4. The findings reveal that there is neither symmetric nor asymmetric causality between fiscal deficits and inflation in Nigeria. This implies that the fiscal deficits in Nigeria are not inflationary; and also, that persistent double-digit inflation rates are not the causal agents spurring perennial increase in fiscal deficits in Nigeria. This study, therefore, concludes that fiscal deficits could be used to stimulate output level in Nigeria without fueling inflationary spiral in the economy. JEL Classification: C32, E17
... See alsoChaudhary and Parai (1991),Anoruo (2003),Lozano (2008),Sahan (2010),Metin (1998),Kia (2010), andErkam and Çetinkaya (2014). ...
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div>The Tanzanian economy has remained one of the limited numbers of countries that has experienced a relatively high inflation rate, accompanied by high fiscal deficits for a prolonged period in the absence of any hyperinflation. This paper examines the deficit-inflation relationship in the Tanzanian economy and establishes the causal link that runs from the budget deficit to the inflation rate usingcointegration analysis over the period 1967-2001. Some dynamic simulations are done to gauge the effect of a change in the budget deficit and gross domestic product on inflation over time. Due to monetisation of the budget deficit, significant inflationary effects are found for increases in the budget deficit. </div
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This paper applies the dynamic panel quantile regression (DPQR) model under the autoregressive distributional lag (ARDL) specification, and examines the deficit-inflation relationship in 91 countries from 1960 to 2006. The DPQR model estimates the impact of deficits on inflation at various inflation levels and allows for a dynamic adjustment with the ARDL specification. The empirical results show that the fiscal deficit has a strong impact on inflation in high-inflation episodes, and has a weak impact in low-inflation episodes. The results imply that fiscal consolidation would be more effective in price stabilization the higher the inflation rate is, and are consistent with the theoretical model of Catão and Terrones (2005).