Modelling the Relationship between Budget Deficits, Money Supply and Inflation in Fiji
Pacific Economic Bulletin Vol. 21, No 2, pp. 103-116, 2006
Posted: 16 Jun 2012
Date Written: 2006
Abstract
Modelling the relationship between budget deficits, money supply and inflation in Fiji 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 elasticities confirm that money supply and deficits induce inflation. While there is a short-run, unidirectional causality running from money supply to inflation and a bidirectional causality between money supply and budget deficits, in the long run both money supply and deficits ‘Granger-cause’ inflation.
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