Budget deficits and inflation feedback

Do Budget Deficits Cause Inflation ?

In 2004, the federal budget deficit stood at $412 billion and reached 4.5 percent of gross domestic product (GDP). Though not at a record level, the deficit as a fraction of GDP is now the largest since the early 1980s. Moreover, the recent swing from surplus to deficit is the largest since the end of World War II (Figure 1). The flip side of deficit spending is that the amount of government de...

Budget deficits, inflation risk, and asset prices

Kitchen examines how US budget deficit news affects asset prices and concludes that news of lower deficits reduces the inflation risk premium. This paper constructs narrative histories of several deficit-reduction laws to identify when markets learned that deficits would fall. It then estimates a multi-factor model that allows the inflation risk premium to vary following news of deficit-reducti...

Budget Deficits and Inflation: A Theoretical and Empirical Survey

The author would like to thank Professors Yasushi Iwamoto (Kyoto University), Toshihiro Ihori (University of Tokyo), Yukinobu Kitamura (Hitotsubashi University), and Keisuke Iida (Aoyama Gakuin University) for their helpful comments. Toru Omori (Institute for Monetary and Economic Studies) conducted a part of the analysis in Chapter 5. The views expressed in this paper are those of the author a...

The Relationship Between Budget Deficit And Inflation In Iran

Modeling the relationship between budget deficits, money supply and inflation in Fiji

Pacific Economic Bulletin Volume 21 Number 2 2006 © Asia Pacific Press For Fiji, which has been suffering persistent deficits since independence, determining the relationships between inflation, budget deficits, money supply, output, and import prices is essential. We find that inflation, deficits and money supply are cointegrated when inflation is the endogenous variable, and the long-run elas...