International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss


Budget Deficits and Inflation in Thirteen Asian Developing Countries
Muzafar Shah Habibullah, Chee-Kok Cheah, A. H. Baharom

In this study we attempt to determine the long-run relationship between budget deficit and inflation in thirteen Asian developing countries, namely; Indonesia, Malaysia, the Philippines, Myanmar, Singapore, Thailand, India, South Korea, Pakistan, Sri Lanka, Taiwan, Nepal and Bangladesh. Using annual data for the period 1950-1999 our Granger causality within the error-correction model (ECM) framework suggest that all variables involved (budget deficits, money supply and inflation) are integrated of order one. Our ECM model estimates indicate the existence of a long-run relationship between inflation and budget deficits. Thus, we conclude that budget deficits are inflationary in Asian developing countries.

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