Fiscal Theory of Price Level: A Panel Data Analysis for selected Saarc Countries

Muhammad Nawaz (), Muhammad Mazhar Iqbal, Amanat Ali () and Khalid Zaman
Additional contact information
Muhammad Nawaz: Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad, Pakistan.
Muhammad Mazhar Iqbal: School of Economics, Quaid-i-Azam University, Islamabad, Pakistan.
Khalid Zaman: Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad, Pakistan.

Journal for Economic Forecasting, 2012, issue 3, 152-170

Abstract: I compare the two alternative paradigms of business cycles for the case of the Romanian eThis paper examines the validity of fiscal theory of price level in the five selected SAARC countries, namely Bhutan, India, Nepal, Pakistan and Sri Lanka by using panel data analysis for the period 1990-2009. Specification tests, i.e. F-test and Hausman test indicate that the fixed effect model can be considered as the best model to examine the relationship between budget deficit and price level. Empirical findings also show that budget deficit is significant and negatively related with the price level in pooled least square, while fixed and random effect model explain that the budget deficit has no role in explaining the given scenario. The GDP per capita is positively and highly significant in all of the models, while openness is explaining its role in reducing the price level in the specified set of countries. The additional robustness tests are also performed to test the validity of results of the model. After removing the variable, i.e. GDPPC from the fixed effect model, the budget deficit (BD) significantly impacts on the SAARC price level. Our findings substantiate that fiscal theory of price level is not valid in the selected SAARC countries. This study opens new dimensions for policy planners, government agencies, NGO’s and other donor agencies working in the SAARC region.

Keywords: budget deficit; price level; trade openness; gross domestic product per capita; panel data; SAARC countries (search for similar items in EconPapers)
JEL-codes: E31 E62 H62 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.ipe.ro/rjef/rjef3_12/rjef3_2012p152-170.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:rjr:romjef:v::y:2012:i:3:p:152-170

Access Statistics for this article

Journal for Economic Forecasting is currently edited by Lucian Liviu Albu and Corina Saman

More articles in Journal for Economic Forecasting from Institute for Economic Forecasting Contact information at EDIRC.
Bibliographic data for series maintained by Corina Saman ( this e-mail address is bad, please contact ).