Budget deficits and inflation: the roles of central bank independence and financial market development

Date

2003

Authors

Neyapti, B.

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Abstract

This article investigates the relationship between budget deficits and inflation with the view that the nature of this relationship depends on the characteristics of monetary and financial institutions. The main hypothesis is that budget deficits are especially inflationary when both the central bank is not independent and the financial market is not developed enough to contain inflationary expectations. The empirical analysis using a panel data that comprises 54 developed and less developed countries, with one to two decades of observations for each, supports this hypothesis. The findings are also robust to subsets of the sample.

Source Title

Contemporary Economic Policy

Publisher

Wiley-Blackwell Publishing, Inc.

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Published Version (Please cite this version)

Language

English