The empirical relationship between fiscal deficits and inflation (Case study: Selected Asian economies)

The relationship between public sector deficits and inflation is one of the important and controversial issues in the academic literature as well as in economic policy field. on the other hand,a major objective of macroeconomic policies is to foster economic growth and to keep inflation on a low level. so keeping the price stability plays an important role in determining the growth rate of output. the main objective of this paper is to investigate the effects of budget deficit,broad money m2 supply,real gdp,import price index,interest rate and exchange rate on inflation (gdp price deflator) in selected asian economics,namely china,japan,korea,india,taiwan,and singapore in the period of 1993-2013. by applying the pooled mean group (pmg)estimation-based error correction model and the panel differenced gmm (general method of moment) arellano-bond estimator,the study finds out budget deficit,real gdp and exchange rate are statistically significant determinants of inflation in both methods of estimation. � 2016,university of teheran. all right reserved.