Further Evidence on the Relationship between Federal Government Debt and Inflation

Rik Hafer () and Scott Hein

Economic Inquiry, 1988, vol. 26, issue 2, 239-51

Abstract: Does an increase in the federal debt cause inflation? Gerald P. Dwyer (1982), us ing a par value measure of debt, finds no such causal link. W. Michae l Cox (1985), using a market value measure, finds that increases in d ebt produce higher inflation rates. The authors reconcile these resul ts by demonstrating that failure to capture the interest rate effects inherent in the market value measure accounts for the finding that d ebt "causes" inflation. Incorporating interest rates into their test equations, using the market value series, leads them to conclude th at increases in federal debt do not cause higher rates of inflation. Copyright 1988 by Oxford University Press.

Date: 1988
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