An Empirical Examination of Current Inflation and Deficit Spending

Giffin, Phillip E.; Macomber, James H.; Berry, Robert E.

doi:10.1080/01603477.1981.11489261

Cited by 11 publications

(1 citation statement)

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“…He found that inflation uncertainty and the expected rate of growth of the money supply are important determinants of changes in long-term interest rates. Giffen et al (1982) argue that the data offers little support for the traditional Keynesian or for the monetarist views on the cause of inflation. They suggest that the investigators might alternatively use some post-Keynesian approach (administered pricing or cost-push analysis) to determine the cause of inflation.…”

Section: Deficits and Inflationmentioning

confidence: 99%

The Budget Deficit and Economic Performance: A Survey

Saleh

Harvie

2005

Singapore Econ. Rev.

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The relationship between budget deficits and macroeconomic variables (such as growth, interest rates, trade deficit, exchange rate, among others) represents one of the most widely debated topics among economists and policy makers in both developed and developing countries. However, the purpose of this paper is to examine the extensive literature to such a relationship, concentrating on theoretical debates, empirical studies, and econometric models in order to derive substantive conclusions, which can be beneficial in terms of macroeconomics area or in terms of constructing or developing a macroeconomic model for analysing the impact of budget deficits on macroeconomic variables. The majority of these studies regress a macroeconomic variable on the deficit variable. These studies are cross-country and utilise time series data. In general the key outcomes from the studies presented in this paper indicated that both the method of financing and the components of government expenditures could have different effects. Therefore, it is crucial to distinguish between current and capital expenditure when evaluating the impact of fiscal policy on private investment and output growth. Even though, the overall results from the empirical literature with respect to the impact of public investment on private investment and growth are ambiguous, the bulk of the empirical studies finds a significantly negative effect of public consumption expenditure on growth, while the effects of public investment expenditure are found to be positive although less robust. The key outcome from all of the studies presented in this paper which investigating the relationship between the budget deficit and current account deficit showed strong evidence in both developed and developing countries towards supporting the Keynesian proposition (conventional view) which suggests that an increase in the budget deficit would induce domestic absorption and, hence import expansion, causing a current account deficit. Furthermore, it can also be concluded from the empirical findings that the effects of budget deficits on exchange rates depends on the way of funding the deficits, whether through taxation or through money growth. The key findings from the empirical studies investigating the relationship between the budget deficit and interest rates indicated strong evidence towards supporting the Keynesian model of a significant and positive relationship between budget deficits and interest rates. The major outcomes from the empirical studies examining the relationship between budget deficits and inflation showed strong evidence that the budget deficit financed through monetisation and a rising money supply could lead to inflation. * I would like to thank A/P Charles Harvie and A/P Edgar J Wilson for their helpful comments and suggestions.

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Section: Deficits and Inflationmentioning

confidence: 99%