International Conference on Eurasian Economies
1-3 July 2014 – Skopje, MACEDONIA
Paper detail
Paper ID : 915
Status : Paper published
Language : Turkish
Topic : Finance and Financial Crises
Presenter: Ph.D. candidate Arzu Tural Dikmen
Session : 6D Makroekonomi I
Fiscal Deficit and Inflation: New Evidences from Turkey Using a Bounds Testing Approach
Bütçe Açığı ve Enflasyon: Türkiye İçin Bir Sınır Testi Yaklaşımı
- Asst. Prof. Dr. Serap Bedir (Erzurum Technical University, Türkiye)
- Ph.D. candidate Arzu Tural Dikmen (Atatürk University, Türkiye)
Abstract
A well-established theory in macroeconomics is that governments running persistent deficits have sooner or later to finance those deficits with money creation, thus producing inflation. The fiscal view of inflation has been especially prominent in the developing country literature, which has long recognized that less efficient tax collection, political instability, and more limited access to external borrowing tend to lower the relative cost of seigniorage and increase dependence on the inflation tax. For this reason, the main factors which affecting inflation rate in developing countries are extremely important for policy makers as when the causes of inflation are correctly specified the appropriate policy change can be easily diagnosed and effectively implemented. The purpose of this study is to test the empirical relationship between inflation and the budget deficit for the Turkish economy by an autoregressive distributed lag model (ARDL) analysis for the period 1970–2010. The data is taken from Republic of Turkey Ministry of Development and World Bank’s Database. The empirical findings indicates that fiscal deficit is one of the important variables of the price level along with other variables like interest rates, exchange rate, per capita income, trade of GDP. The short-run analysis captured from error correction model (ECM). The results of the bounds test suggest that there is a long run relationship between fiscal deficit and inflation. These findings drive important inferences for implications of monetary and fiscal policies.
JEL codes: E62, E52, H62
Bedir, Serap, Tural Dikmen, Arzu (2014). "Fiscal Deficit and Inflation: New Evidences from Turkey Using a Bounds Testing Approach" in Proceedings of International Conference of Eurasian Economies 2014, pp.891-899, Skopje, MACEDONIA.
DOI: https://doi.org/10.36880/C05.00915
