Budget Deficit and Macroeconomics Fundamentals: The case of Azerbaijan

Kahnim Farajova ()
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Kahnim Farajova: Alexander Technological Educational Institute (ATEI) of Thessaloniki, 57400, Thessaloniki, P.O. Box: 14, Greece

International Journal of Business and Economic Sciences Applied Research (IJBESAR), 2011, vol. 4, issue 2, 143-158

Abstract: In recent years, the emergence of rising budget deficit is the main reason forcing economists to investigate the reasons for changes in fiscal balances. The purpose of the paper is to investigate the relationship between budget deficit and macroeconomic fundamentals using data from Azerbaijan. The empirical analysis applies ARDL Cointegration methodology in conjunction with Granger causality tests to provide evidence for both the long and short run dynamics between the variables involved in the analysis. Using the Error Correction specification, there was found evidence of long-run causality running from current account, real interest rate, GDP, inflation and exchange rate to budget deficit. There was also found evidence of short-run Granger causal effects running from current account and real interest rate towards budget deficit and a rather weak causal effect from inflation to budget deficit. However, there is no short – run causality running from interest rate to budget deficit.

Keywords: Budget deficit; Fiscal policy; Cointegration methodology; Error correction model (search for similar items in EconPapers)
JEL-codes: C22 E62 H62 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:tei:journl:v:4:y:2011:i:2:p:143-158

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