Are fiscal deficits really inflationary? an investigation into Ethiopian experience
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Dosyalar
Tarih
2020
Yazarlar
Dergi Başlığı
Dergi ISSN
Cilt Başlığı
Yayıncı
İstanbul Ticaret Üniversitesi
Erişim Hakkı
info:eu-repo/semantics/openAccess
Özet
Ethiopian macroeconomy has been characterized by enormous disequilibria explained by galloping inflation, increasing unemployment, inadequate balance of payments, mounting burden of debt and fluctuating output. Only recently the country’s income growth is reported to register relatively stable rate, leaving other indicators unsteady. This study establishes long-run relation between budget deficits and inflation while controlling for money supply, owing to the justified links between deficits and money supply especially across developing countries. The study employed time series data with temporal coverage of 1980-2018. Augmented Dickey Fuller has tested nonstationary for all series, but with all stationary at first difference. Engle-Granger (1981) approach tested long-run relation between budget deficits, money supply and inflation. Due to Laney and Willet (1983) the conventional least squares method was adopted to establish long-run relation among the three variables. The long-run results evidenced that fiscal deficits and money supply have been at the root of galloping inflation in Ethiopia. There is also evidence that, budget deficits have been the root cause of money supply growth in Ethiopia; while giving support to a view that, governments of less developing countries resort to monetize large portion of their deficits. There is need to reform the fiscal aspect of the government, if the mounting rate of deficits has to be lessened. Budgetary imbalances can be rectified through enhancement of domestic capital market and setting limits on central bank borrowing. Besides, it could be vital to expand the tax base as well as intensify efficiency of the existing tax system in the country.
Açıklama
Anahtar Kelimeler
Cointegration, Ethiopia, Fiscal Deficits, Inflation, Money Supply, Stationarity
Kaynak
International Journal of Commerce and Finance
WoS Q Değeri
Scopus Q Değeri
Cilt
6
Sayı
2
