THE COINTEGRATION ANALYSIS OF BUDGET DEFICIT AND INFLATION FOR LATIN AMERICAN COUNTRIES

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This paper aims to analyze the empirical relationship among budget deficit and inflation for the Latin American and Caribbean Countries over the period 1980-2011, annually. According to economic theory, especially in developing countries fiscal imbalances result in inflation. Therefore, if budget deficit is financed through monetarisation, then rising money supply could lead to inflation in these countries. In this paper, we are analyzing the relationship between budget deficit and inflation for nineteen less developed and developing Latin and Caribbean Countries. We are using panel data cointegration analysis to figure out the relationship between inflation and budget deficit. According to empirical results of the study, in the long-term there is a positive relationship between budget deficits and inflation, while in the short-term budget deficits is not the cause of inflation.

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Inflation , Budget Deficit , Panel Data , Cointegration Analysis , Latin American and Caribbean Countries

Erciyes University Journal Of Economics an‎d Administrative Sciences

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Erciyes University Journal Of Economics an‎d Administrative Sciences