Abstract:
The relationship between public sector deficits and inflation is one of the important and controversial issues in the academic literature as well as in economic policy field. On the other hand، a major objective of macroeconomic policies is to foster economic growth and to keep inflation on a low level. So keeping the price stability plays an important role in determining the growth rate of output. The main objective of this paper is to investigate the effects of budget deficit، broad money supply، real GDP، import price index، interest rate and exchange rate on inflation ( price deflator) in selected Asian economics، namely China، Japan، Korea، India، Taiwan، and Singapore in the period of 1993-2013. By applying the Pooled Mean Group estimation-based error correction model and the panel differenced (General Method of Moment) Arellano-Bond estimator، the study finds out budget deficit، real GDP and exchange rate are statistically significant determinants of inflation in both methods of estimation.
Machine summary:
The main objective of this paper is to investigate the effects of budget deficit, broad money supply, real GDP, import price index, interest rate and exchange rate on inflation ( price deflator) in selected Asian economics, namely China, Japan, Korea, India, Taiwan, and Singapore in the period of 1993-2013.
By applying the Pooled Mean Group estimation-based error correction model and the panel differenced (General Method of Moment) Arellano-Bond estimator, the study finds out budget deficit, real GDP and exchange rate are statistically significant determinants of inflation in bothmethods of estimation.
The remainder of this paper will be proceeding as follows: Section 2 outlines a review of literature about effects of fiscal deficit and money supply on inflation; Section 3 describes the data and theoretical basis; Section 4 presents the model and methodology; Section 5 represents empirical results, and final section provides conclusion and policy implications.
3 The Panel Differenced GMM Arellano-Bond Estimation Where is inflation in first difference; is a vector of variables in first difference including variables of fiscal policy (fiscal deficit and government expenditure), variables of monetary policy (broad money supply and interest rate) and some control variables (real , exchange rate and trade openness); is an unobserved time-invariant, country-specific effect and is an observation-specific error term.
2 related to data and methodology, this paper applies the estimation–based error correction model to analyze the effects of budget deficit, real GDP, broad money supply and exchange rate on inflation.
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