Effects of Fiscal Deficit and Money M2 Supply on Inflation: Evidence from Selected Economies of Asia

Journal of Economics, Finance and Administrative Science, Vol. 20, pp. 49–53, 2015

5 Pages Posted: 6 Jun 2015

See all articles by Bon Nguyen

Bon Nguyen

Ho Chi Minh City University of Economics and Finance

Date Written: June 3, 2015

Abstract

A sustained high growth rate of gross domestic product at a low inflation is one of the main goals of the majority of macroeconomic policies, so keeping the price stability plays an important role in determining the growth rate of output. This paper empirically investigates effects of fiscal deficit and broad money M2 supply on inflation in Asian countries, namely Bangladesh, Cambodia, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, Thailand, and Vietnam in the period of 1985-2012. 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 broad money M2 supply has significantly positive impact on inflation only in the method of PMG estimation whereas fiscal deficit, government expenditure and interest rate are the statistically significant determinants of inflation in both methods of estimation.

Keywords: Fiscal deficit, Broad money M2 supply, Inflation, PMG estimation, Differenced panel GMM estimator, Asian countries

Suggested Citation

Nguyen, Bon, Effects of Fiscal Deficit and Money M2 Supply on Inflation: Evidence from Selected Economies of Asia (June 3, 2015). Journal of Economics, Finance and Administrative Science, Vol. 20, pp. 49–53, 2015, Available at SSRN: https://ssrn.com/abstract=2614047

Bon Nguyen (Contact Author)

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

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