Inflation and Federal Budget Deficits: some Empirical Results

Ali F. Darrat
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Ali F. Darrat: University of Kentucky

Public Finance Review, 1985, vol. 13, issue 2, 206-215

Abstract: This article examines empirically the potential link between federal budget Abstract deficits and inflation in the post-1960 period. Based on established economic theory, and contrary to most previous empirical studies, the article estimates a model in which monetary and other financial assets (government bonds) are treated equally. The empirical results suggest that both monetary growth and federal deficits exert a significant influence on inflation during the 1960s and 1970s. The results further indicate that, relative to monetary growth, federal deficits have had a stronger and more reliable impact on inflation. Thus, along with restraints in monetary expansions, restrictive fiscal policy is also found to be an important anti-inflationary measure.

Date: 1985
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:13:y:1985:i:2:p:206-215

DOI: 10.1177/109114218501300205

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