Premium
Budget Deficits and Inflation: The Roles of Central Bank Independence and Financial Market Development
Author(s) -
Neyapti Bilin
Publication year - 2003
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1093/cep/byg025
Subject(s) - economics , inflation (cosmology) , monetary economics , sample (material) , independence (probability theory) , central bank , panel data , monetary policy , financial market , inflation targeting , macroeconomics , finance , econometrics , chemistry , physics , statistics , mathematics , chromatography , theoretical physics
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. (JEL E58 , H62 )