Inflation versus Public Expenditure Growth in the U.S.: An Empirical Investigation

North American Journal of Finance and Banking Research, Vol. 2, No. 2, 2008

15 Pages Posted: 19 Jan 2010

See all articles by Chinedu Ezirim

Chinedu Ezirim

University of Port Harcourt

Michael Muoghalu

affiliation not provided to SSRN

Uchenna Elike

Alabama A & M University

Date Written: December 28, 2008

Abstract

This paper investigates the relationship between public expenditure growth and inflation in the United States of America using the co-integration analysis and Granger Causality Model applied to Time Series Annual Data from 1970-2002. The results indicate that public expenditure and inflation are co-integrated and thus there exist a long-run equilibrium relation between the two variables. There is also a bi-causational relationship between public expenditure growth and inflation in the United States of America. Inflation significantly influences public expenditure decisions in the United States of America. Public expenditure growth was seen to aggravate inflationary pressures in the country, where reduction in public expenditure tends to reduce inflation. Thus, as in previous studies, the efficacy of Keynesian's fiscal policy as a veritable tool to combating inflation in the developed countries is not falsified

Keywords: Public Expenditure, Inflation, Developing Economies

JEL Classification: E31, E62, H5, H59

Suggested Citation

Ezirim, Chinedu and Muoghalu, Michael and Elike, Uchenna, Inflation versus Public Expenditure Growth in the U.S.: An Empirical Investigation (December 28, 2008). North American Journal of Finance and Banking Research, Vol. 2, No. 2, 2008. Available at SSRN: https://ssrn.com/abstract=1536656

Chinedu Ezirim (Contact Author)

University of Port Harcourt ( email )

P.M.B 5323, Choba
Port Harcourt, RI Rivers State 500001
Nigeria

Michael Muoghalu

affiliation not provided to SSRN ( email )

Uchenna Elike

Alabama A & M University ( email )

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