Fiscal Deficits and Inflation : A New Look at the Emerging Market Evidence /

Empirical studies have had little success in finding a statistically significant relationship between fiscal deficits and inflation in broad cross-country panels. This paper provides new econometric estimates for a panel of 23 emerging market countries during 1970-2000. Unlike previous studies, we a...

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Bibliographic Details
Main Author: Terrones, Marco
Other Authors: Catao, Luis
Format: Journal
Language:English
Published: Washington, D.C. : International Monetary Fund, 2001.
Series:IMF Working Papers; Working Paper ; No. 2001/074
Online Access:Full text available on IMF
Description
Summary:Empirical studies have had little success in finding a statistically significant relationship between fiscal deficits and inflation in broad cross-country panels. This paper provides new econometric estimates for a panel of 23 emerging market countries during 1970-2000. Unlike previous studies, we allow for a rich dynamic specification and focus on the long-run relationship between the two variables controlling for differences in the inflation tax base. We find that a 1 percentage point reduction in the ratio of fiscal deficit to GDP typically lowers long-run inflation by 1 1\2 to 6 percentage points, depending on the size of the inflation tax base.
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Physical Description:1 online resource (31 pages)
Format:Mode of access: Internet
ISSN:1018-5941
Access:Electronic access restricted to authorized BRAC University faculty, staff and students