Budget Deficit, Money Growth and Inflation: Evidence from the Colombian Case

Ignacio Lozano-Espitia

No 5127, Borradores de Economia from Banco de la Republica

Abstract: Evidence of the causal long-term relationship between budget deficit, money growth and inflation in Colombia is analyzed in this paper, considering the standard (M1), the narrowest (M0-Base) and the broadest (M3) definitions of money supply. Using a vector error correction (VEC) model with quarterly data over the last 25 years, the study found a close relationship between inflation and money growth on the one hand, and between money growth and fiscal deficit, on the other. The size of the long-term parameters looks acceptable, particularly when compared to what is seen in other countries, using analogous or different techniques. The conclusion, supported by several statistical tests, is that the Sargent and Wallace hypothesis would be the most appropriate approach to understanding the dynamics of these variables.

Keywords: Deficit; Money supply; Inflation; Hypothesis testing. (search for similar items in EconPapers)
JEL-codes: C12 E31 E51 H62 (search for similar items in EconPapers)
Pages: 25
Date: 2008-11-09
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.banrep.gov.co/docum/ftp/borra537.pdf

Related works:
Journal Article: Budget Deficit, Money Growth and Inflation: Evidence from the Colombian case (2009)
Working Paper: Budget Deficit, Money Growth and Inflation: Evidence from the Colombian Case (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:col:000094:005127

Access Statistics for this paper

More papers in Borradores de Economia from Banco de la Republica
Bibliographic data for series maintained by Clorith Angelica Bahos Olivera ().