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- Title
Budget Deficit, Money Supply and Inflation: The Case of Pakistan.
- Authors
Mukhtar, Tahir; Zakaria, Muhammad
- Abstract
Conventional notions suggest that persistently high budget deficits give rise to inflation, which monetary policy on its own is powerless to prevent. However, empirical evidence does not provide convincing support for such a hypothesis. This paper reexamines the issue in the case of Pakistan using Johansen cointegration analysis. The empirical results suggest that in the long-run inflation is not related to budget deficit but only to supply of money, and supply of money has no causal connection with budget deficit. Hence, the findings imply that the hard government budget constraint does not find empirical support for Pakistan.
- Publication
Economic Trends & Economic Policy, 2010, Vol 20, Issue 122, p53
- ISSN
1330-187X
- Publication type
Academic Journal