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

Marco Terrones and Luis Catão ()

No 2001/074, IMF Working Papers from International Monetary Fund

Abstract: 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 1½ to 6 percentage points, depending on the size of the inflation tax base.

Keywords: WP; exchange rate; fiscal deficit; world inflation; Fiscal Policy; Inflation; Emerging Markets; deficit measure; narrow money; deficit-inflation relationship; deficit variable; oil price; deficit concept; PMGE estimate; Government debt management; Oil prices; Exchange rate arrangements; Interest payments; Global (search for similar items in EconPapers)
Pages: 31
Date: 2001-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=15188 (application/pdf)

Related works:
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:imf:imfwpa:2001/074

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().