TITLE:
Revisit the Budget Deficits and Inflation: Evidence from Time and Frequency Domain Analyses
AUTHORS:
Aviral Kumar Tiwari, Süleyman Bolat, Özgür Koçbulut
KEYWORDS:
Budget Deficits, Inflation, Frequency Domain Analysis, EU Countries
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.3,
May
8,
2015
ABSTRACT: The purpose of this paper is to test the relationship between budget
deficits and inflation for nine EU countries during the period of 1990-2013
using the quarterly data. Recently, the public deficits and inflation have had
an increasing importance for developing/emerging and developed countries to
build the stability macroeconomic performance in the long run. This study is
the first attempt to determine the relationship between the inflation and
budget deficits for nine EU countries using different bootstrap causality
tests. We employ the bootstrap
causality and Granger causality test in the frequency domain analysis
which allows us to distinguish short and long-run causality. We do not find a
relationship between these variables when we employ bootstrap causality analysis. While the frequency domain causality shows
that there is no relationship causality from budget deficits to inflation for
all countries, causality from inflation to budget deficits indicates a
permanent (long-run) relationship for Belgium, and France.