The Effect of Fiscal Policy on Inflation Rate in Cambodia

Ratana Eng and Siphat Lim
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Ratana Eng: Ministry of Economy and Finance, CamEd - CamEd Business School
Siphat Lim: CamEd - CamEd Business School

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Abstract: ABSTRACT A reduced-form VAR model was employed to investigate the inter-relationship between three macroeconomic indicators, consumer price index, nominal exchange rate, and government expenditure. The estimated result of the forecast error variance decomposition indicated that the variation of inflation rates over the period of the study was mainly caused by the variation of itself about 96 percent in the short-run and reduced to around 81.31 percent in the long-run. This claimed that the price was sticky in Cambodia. In the short-run, the percentage change of exchange rate caused no more than 5 percent change of the variation of inflation rate, but the effect was predicted to be two and haft folds in the long run. The variation of inflation rate caused by the percentage change of government expenditure was no greater than 6 percent considered as low as compared to the percentage change of exchange rate. The estimated result of the impulse response function indicated that fiscal expansionary had a positive and negative effect on inflation rate in the short and long run, respectively. Keywords: Inflation rate; Fiscal policy; VAR model; FEVD; IRF

Keywords: Inflation rate; Fiscal policy; VAR model; FEVD; IRF (search for similar items in EconPapers)
Date: 2022
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Published in Journal of Accounting, Finance, Economics, and Social Sciences, 2022, 7 (1), pp.31-40. ⟨10.62458/jafess.160224.7(1)31-40⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04556429

DOI: 10.62458/jafess.160224.7(1)31-40

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