Do fiscal deficits cause inflation? Evidence from Suriname

Gavin Ooft ()
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Gavin Ooft: Suriname Economic Oversight Board,Paramaribo, Suriname

Public Sector Economics, 2025, vol. 49, issue 1, 153-179

Abstract: This study examines the impact of the fiscal balance on headline inflation in Suriname. Historically, Suriname coped with multiple episodes of high inflation. A structural vector autoregression (SVAR) framework with annual data from 1961 to 2022 is used to assess the transmission of fiscal shocks to consumer prices. In addition, the analysis takes into account commodity prices, money supply, the exchange rate, and output growth. The empirical analysis reveals that exchange-rate shocks are the primary driver of inflation. Energy commodity price shocks also induce price pressures, in contrast to non-energy commodity price shocks. Fiscal shocks do not affect inflation directly. Nonetheless, there is evidence that these shocks do affect the exchange rate substantively. The results of this study emphasize the importance of exchange-rate stability, while fiscal discipline can alleviate exchange-rate and inflationary pressures.

Keywords: inflation; fiscal balance; money supply; SVAR (search for similar items in EconPapers)
JEL-codes: E31 E51 E62 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ipf:psejou:v:49:y:2025:i:1:p:153-179

DOI: 10.3326/pse.49.1.6

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