Fiscal Explanations for Inflation: Any Evidence from Transition Economics?

59 Pages Posted: 23 Nov 2000

See all articles by Tuomas Komulainen

Tuomas Komulainen

Mandatum Stockbrokers Ltd. - Sampo Group

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Date Written: November 2000

Abstract

Recent arguments, motivated partly by the new fiscal theory of price level, suggest that fiscal deficits undermine price stability in transition economies. This paper addresses these claims by examining vector-autoregressive models of inflation for three crisis-hidden transition economies (Bulgaria, Romania and Russia). The results indicate that while fiscal deficits have increased inflation in Bulgaria to a certain extent, this has not been the case in Romania and Russia. Even in the Bulgarian case, the usual money aggregate has proven more influential to inflation than fiscal deficits. The analysis based on this method therefore suggests that monetary policy plays an influential role in inflation determination in these countries. In other words, inflationary financing of deficits, rather than deficits themselves, accounts for inflation.

Keywords: fiscal policy, inflation, vector autoregressive models, transition economies

Suggested Citation

Komulainen, Tuomas and Pirttila, Jukka, Fiscal Explanations for Inflation: Any Evidence from Transition Economics? (November 2000). BOFIT Discussion Paper No. 11/2000. Available at SSRN: https://ssrn.com/abstract=250531 or http://dx.doi.org/10.2139/ssrn.250531

Tuomas Komulainen (Contact Author)

Mandatum Stockbrokers Ltd. - Sampo Group ( email )

Finland

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

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