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THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH

Year 2003, Volume: 3 Issue: 1, 47 - 57, 01.05.2003

Yeşim Kuştepeli

Abstract

It is basically accepted by now that there is a positive relationship between the nominal government deficits and inflation. Government deficits may be financed by monetary growth due to several reasons but whatever the reason, the result is an increase in inflation. This in turn may affect the growth of real GNP negatively, due to its adverse effects on the allocation of resources, on the labor market and on the decisions of firms. This paper combines these two links, i.e. nominal government deficits and inflation, and inflation and real GNP growth. It further shows the effect of nominal government deficits on the economic growth for Turkey. Our results from cointegration and causality tests show that for Turkey for the period of 1950 2001, nominal government deficits led to increases in the monetary base only in the short run, causing
inflation both in the short and the long run. The effect of inflation on real GNP growth is weak and in the reverse direction.

References

  • AGHEVLI, B.B. and KHAN M.S. (1978): “Government Deficit and the Inflationary Process in Developing Countries”, IMF Staff Papers, 25, pp. 383- 416.
  • AHKING, F.W. and MILLER S.M. (1985): “The Relationship Between Government Deficit, Money Growth and Inflation”, Journal of Macroeconomics, 7(4), pp. 447-467.
  • ALLEN, S.D. and SMITH M.D. (1983): “Government Borrowing and Monetary Accommodation”, Journal of Monetary Economics, 12, pp. 605-616.
  • ATKINS, F. J. and COE P. J.,(2002): “ An ARDL Bounds Test of the Long-Run Fisher Effect in the United States And Canada”, Journal of Macroeconomics, 24 (2), pp. 255-266.
  • BALL, L. and CECCHETTI S.G. (1990): “Inflation and Uncertainty at Short and Long Horizons”, Brookings Papers on Economic Activity, 1, pp. 215- 245.
  • ______ (1992): “Why does High Inflation Raise Inflation Uncertainty?”, Journal of Monetary Economics, 29, pp. 371-388.
  • BARRO, R. (1996): “Inflation and Growth”, Federal Reserve Bank of St. Louis Review, 78(3), pp. 153-169.
  • BRUNO, M. and EASTERLY W. (1996): “Inflation and Growth: In Search of a Stable Relationship”, Federal Reserve Bank of St. Louis Review, 78(3), pp. 139-146.
  • CANAVESE, A.J. and HEYMANN D. (1992): “Fiscal Lags and the High Inflation Trap”, Quarterly Review of Economics and Finance, 32(2), pp. 100-109.
  • CEBULA, R. J. (1995): “ The Impact of Federal Government Budget Deficits on Economic Growth in the United States: An Empirical Investigation, 1955-1992”, International Review of Economics and Finance, 4(3), pp. 245-252
  • CHAREMZA, W. W. DEADMAN and D. F. (1992): New Directions in Econometric Practice, Edward Elgar, England.
  • DARRAT, A. (1986): “Money, Inflation and Causality in the North African Countries: an Empirical Investigation”, Journal of Macroeconomics, 8(1), pp. 87-103.
  • DICKEY, D. and FULLER W.A. (1979): “Distribution of the Estimates for Autoregressive Time Series with a Unit Root”, Journal of American Statistical Association, 74(366), pp. 427-431.
  • ________________________ (1981): “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root”, Econometrica, 49 (4), pp. 1057-1072.
  • DORNBUSCH, R., FISCHER S. and STARTZ R. (2001): Maroeconomics, McGraw Hill, Eight Edition, International Edition.
  • ENGLE, R. F. and GRANGER C. W. J. (1987): “Cointegration and error Correction: Representation, Estimation, And Testing”, Econometrica, 55, pp. 251-276.
  • ENDERS, W. (1995): Applied Econometric Time Series, Wiley Series In Probability and Mathematical Statistics, John Wiley & Sons, Inc.
  • FAHMY, Y. S. A. and KANDIL M. (2002): “The Fisher Effect: New Evidence and Implications”, International Review of Economics & Finance, In Press, Uncorrected Proof (Available online 11 September 2002)
  • FELDSTEIN, M. (1982), “Inflation, Tax Rules and Investment: Some Econometric Evidence”, Econometrica, 50(4), pp. 825-862.
  • FISHER, I. (1930): The Theory of Interest, Macmillan, New York.
  • FISCHER, S. (1991): “Growth, Macroeconomics and Development”, NBER Macroeconomics Annual, 6, pp. 329-364.
  • _________ (1993): “The Role of Macroeconomic Factors in Growth”, Journal of Monetary Economics, 32, pp. 485-512.
  • _________ and MODIGLIANI F. (1978): “Towards an Understanding of the Real Effects and Costs of Inflation” , Weltwirtschaftlishes Archiv, 114(4), pp. 810-832.
  • FRANKEL, J.A. and LOWN C. S. (1994): “An Indicator of Future Inflation Extracted From The Steepness of The Interest Rate Yield Curve Along Its Entire Length”, Quarterly Journal of Economics, 109, pp. 517–530.
  • FRATIANNI, M. and SPINELLI F. (2001): “Fiscal Dominance and Money Growth in Italy: The Long Record”, Explorations in Economic History, 38, pp. 252-272.
  • GOVERNMENT PLANNING ORGANIZATION, Turkey, www.dpt.gov.tr
  • GYLFASON, T. (1998): “Output Gains From Economic Stabilization”, Journal of Development Economics, 56, pp. 81-96.
  • GYLFASON, T. and HERBERTSSON T. T. (2001): “Does Inflation Matter for Growth”, Japan and the World Economy, 13, pp. 405-428.
  • HAMBURGER, M.J. and ZWICK B. (1981): “Deficits, Money and Inflation”, Journal of Monetary Economics, 7, pp. 141-150.
  • HOFFMAN, D.L., LOW S.A. and REINEBERG H.H. (1983): “Recent Evidence On the Relationship Between Money Growth and Budget Deficits”, Journal of Macroeconomics, 5(2), pp. 223-231.
  • LOUNGANI P. and SHEETS N. (1997): “Central Bank Independence, Inflation and Growth in Transition Economies”, Journal of Money, Credit and Banking, 29(3), pp. 381-399.
  • LUCAS, R.E. (1973): “Some International Evidence on Output-inflation Tradeoffs”, American Economic Review, 63, pp. 326-335.
  • LUDVIGSON, S. (1996): “The Macroeconomic Effects of Government Debt in a Stochastic Growth Model”, Journal of Monetary Economics, 38, pp. 25- 45.
  • MISHKIN, F.S. (1990): “What Does The Term Structure Tell Us About Future Inflation?”, Journal of Monetary Economics, 25, pp. 77–95.
  • _______________ (1990): “The Information In The Longer-Maturity Term Structure About Future Inflation”, Quarterly Journal of Economics, 105, pp. 815–828.
  • _______________ (1991): “A Multi-Country Study Of The Information In The Shorter Maturity Term Structure About Future Inflation”, Journal of International Money and Finance, 10, pp. 2–22.
  • NISKAKEN, W. A. (1978): “Deficits, Government Spending, and Inflation, what is the evidence?”, Journal of Monetary Economics, 4, pp. 591-602.
  • ÖZATAY, F. (1997): “Sustainability of Fiscal Deficits, Monetary Policy and Inflation Stabilization: The Case of Turkey”, Journal of Policy Modeling, 19(6), pp. 661-681.
  • PAKKO, M. R. (1998): “Shoe-Leather Costs of Inflation and Policy Credibility”, Federal Reserve Bank of St. Louis Review, 80(6), pp. 37-48.
  • PINDYCK, R.S. and SOLIMANO A. (1993): “Economic Instability and Aggregate Investment” NBER Working Paper, No. 4380.
  • SÖNMEZ, S. (1994): “Bütçe Açığının Finansmanı ve Enflasyon”, METU Studies in Development, 21(4), pp. 579-603.
  • ULENGIN, B. (1995): “Bütce Açığı, Parasal Büyüme, Enflasyon, Döviz Kuru ve Üretim Arasındakı Nedensellik İliskileri: Türkiye Üzerine Bir Uygulama”, METU Studies in Development, 22(1), pp. 101-116.

Year 2003, Volume: 3 Issue: 1, 47 - 57, 01.05.2003

Yeşim Kuştepeli

Abstract

Cari hükümet açıkları ve enflasyon arasında pozitif bir ilişkinin varlığı genellikle kabul edilmiş bir olgudur. Hükümet açıkları birçok sebepten dolayı parasal büyüme ile finanse edilebilir; ancak sebep ne olursa olsun sonuç enflasyonda bir artıştır. Bu da kaynak dağılımı, işgücü piyasası ve firma kararlarına ters etkileri nedeniyle reel GSMH’daki büyümeyi negatif olarak etkileyebilir. Bu çalışmanın amacı, cari hükümet açıkları ve enflasyon, enflasyon ve reel GSMH’daki büyüme arasındaki iki bağlantıyı birleştirmek ve Türkiye’de cari hükümet açıklarının ekonomik büyümeye etkisini göstermektir. Eşbütünleşme ve nedensellik testlerini sonuçları, Türkiye’de 1950-2001 yılları arasında cari hükümet açıklarının sadece kısa dönemde parasal tabanda artışlara yol açarak, hem kısa hem de uzun dönemde enflasyona neden olduğunu göstermektedir. Enflasyonun reel GSMH büyümesine etkisi ise zayıf ve ters yöndedir

References

  • AGHEVLI, B.B. and KHAN M.S. (1978): “Government Deficit and the Inflationary Process in Developing Countries”, IMF Staff Papers, 25, pp. 383- 416.
  • AHKING, F.W. and MILLER S.M. (1985): “The Relationship Between Government Deficit, Money Growth and Inflation”, Journal of Macroeconomics, 7(4), pp. 447-467.
  • ALLEN, S.D. and SMITH M.D. (1983): “Government Borrowing and Monetary Accommodation”, Journal of Monetary Economics, 12, pp. 605-616.
  • ATKINS, F. J. and COE P. J.,(2002): “ An ARDL Bounds Test of the Long-Run Fisher Effect in the United States And Canada”, Journal of Macroeconomics, 24 (2), pp. 255-266.
  • BALL, L. and CECCHETTI S.G. (1990): “Inflation and Uncertainty at Short and Long Horizons”, Brookings Papers on Economic Activity, 1, pp. 215- 245.
  • ______ (1992): “Why does High Inflation Raise Inflation Uncertainty?”, Journal of Monetary Economics, 29, pp. 371-388.
  • BARRO, R. (1996): “Inflation and Growth”, Federal Reserve Bank of St. Louis Review, 78(3), pp. 153-169.
  • BRUNO, M. and EASTERLY W. (1996): “Inflation and Growth: In Search of a Stable Relationship”, Federal Reserve Bank of St. Louis Review, 78(3), pp. 139-146.
  • CANAVESE, A.J. and HEYMANN D. (1992): “Fiscal Lags and the High Inflation Trap”, Quarterly Review of Economics and Finance, 32(2), pp. 100-109.
  • CEBULA, R. J. (1995): “ The Impact of Federal Government Budget Deficits on Economic Growth in the United States: An Empirical Investigation, 1955-1992”, International Review of Economics and Finance, 4(3), pp. 245-252
  • CHAREMZA, W. W. DEADMAN and D. F. (1992): New Directions in Econometric Practice, Edward Elgar, England.
  • DARRAT, A. (1986): “Money, Inflation and Causality in the North African Countries: an Empirical Investigation”, Journal of Macroeconomics, 8(1), pp. 87-103.
  • DICKEY, D. and FULLER W.A. (1979): “Distribution of the Estimates for Autoregressive Time Series with a Unit Root”, Journal of American Statistical Association, 74(366), pp. 427-431.
  • ________________________ (1981): “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root”, Econometrica, 49 (4), pp. 1057-1072.
  • DORNBUSCH, R., FISCHER S. and STARTZ R. (2001): Maroeconomics, McGraw Hill, Eight Edition, International Edition.
  • ENGLE, R. F. and GRANGER C. W. J. (1987): “Cointegration and error Correction: Representation, Estimation, And Testing”, Econometrica, 55, pp. 251-276.
  • ENDERS, W. (1995): Applied Econometric Time Series, Wiley Series In Probability and Mathematical Statistics, John Wiley & Sons, Inc.
  • FAHMY, Y. S. A. and KANDIL M. (2002): “The Fisher Effect: New Evidence and Implications”, International Review of Economics & Finance, In Press, Uncorrected Proof (Available online 11 September 2002)
  • FELDSTEIN, M. (1982), “Inflation, Tax Rules and Investment: Some Econometric Evidence”, Econometrica, 50(4), pp. 825-862.
  • FISHER, I. (1930): The Theory of Interest, Macmillan, New York.
  • FISCHER, S. (1991): “Growth, Macroeconomics and Development”, NBER Macroeconomics Annual, 6, pp. 329-364.
  • _________ (1993): “The Role of Macroeconomic Factors in Growth”, Journal of Monetary Economics, 32, pp. 485-512.
  • _________ and MODIGLIANI F. (1978): “Towards an Understanding of the Real Effects and Costs of Inflation” , Weltwirtschaftlishes Archiv, 114(4), pp. 810-832.
  • FRANKEL, J.A. and LOWN C. S. (1994): “An Indicator of Future Inflation Extracted From The Steepness of The Interest Rate Yield Curve Along Its Entire Length”, Quarterly Journal of Economics, 109, pp. 517–530.
  • FRATIANNI, M. and SPINELLI F. (2001): “Fiscal Dominance and Money Growth in Italy: The Long Record”, Explorations in Economic History, 38, pp. 252-272.
  • GOVERNMENT PLANNING ORGANIZATION, Turkey, www.dpt.gov.tr
  • GYLFASON, T. (1998): “Output Gains From Economic Stabilization”, Journal of Development Economics, 56, pp. 81-96.
  • GYLFASON, T. and HERBERTSSON T. T. (2001): “Does Inflation Matter for Growth”, Japan and the World Economy, 13, pp. 405-428.
  • HAMBURGER, M.J. and ZWICK B. (1981): “Deficits, Money and Inflation”, Journal of Monetary Economics, 7, pp. 141-150.
  • HOFFMAN, D.L., LOW S.A. and REINEBERG H.H. (1983): “Recent Evidence On the Relationship Between Money Growth and Budget Deficits”, Journal of Macroeconomics, 5(2), pp. 223-231.
  • LOUNGANI P. and SHEETS N. (1997): “Central Bank Independence, Inflation and Growth in Transition Economies”, Journal of Money, Credit and Banking, 29(3), pp. 381-399.
  • LUCAS, R.E. (1973): “Some International Evidence on Output-inflation Tradeoffs”, American Economic Review, 63, pp. 326-335.
  • LUDVIGSON, S. (1996): “The Macroeconomic Effects of Government Debt in a Stochastic Growth Model”, Journal of Monetary Economics, 38, pp. 25- 45.
  • MISHKIN, F.S. (1990): “What Does The Term Structure Tell Us About Future Inflation?”, Journal of Monetary Economics, 25, pp. 77–95.
  • _______________ (1990): “The Information In The Longer-Maturity Term Structure About Future Inflation”, Quarterly Journal of Economics, 105, pp. 815–828.
  • _______________ (1991): “A Multi-Country Study Of The Information In The Shorter Maturity Term Structure About Future Inflation”, Journal of International Money and Finance, 10, pp. 2–22.
  • NISKAKEN, W. A. (1978): “Deficits, Government Spending, and Inflation, what is the evidence?”, Journal of Monetary Economics, 4, pp. 591-602.
  • ÖZATAY, F. (1997): “Sustainability of Fiscal Deficits, Monetary Policy and Inflation Stabilization: The Case of Turkey”, Journal of Policy Modeling, 19(6), pp. 661-681.
  • PAKKO, M. R. (1998): “Shoe-Leather Costs of Inflation and Policy Credibility”, Federal Reserve Bank of St. Louis Review, 80(6), pp. 37-48.
  • PINDYCK, R.S. and SOLIMANO A. (1993): “Economic Instability and Aggregate Investment” NBER Working Paper, No. 4380.
  • SÖNMEZ, S. (1994): “Bütçe Açığının Finansmanı ve Enflasyon”, METU Studies in Development, 21(4), pp. 579-603.
  • ULENGIN, B. (1995): “Bütce Açığı, Parasal Büyüme, Enflasyon, Döviz Kuru ve Üretim Arasındakı Nedensellik İliskileri: Türkiye Üzerine Bir Uygulama”, METU Studies in Development, 22(1), pp. 101-116.
There are 42 citations in total.

Details

Other ID JA68MA26DZ
Journal Section Research Article
Authors

Yeşim Kuştepeli This is me

Publication Date May 1, 2003
Published in Issue Year 2003 Volume: 3 Issue: 1

Cite

APA Kuştepeli, Y. (2003). THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH. Ege Academic Review, 3(1), 47-57.
AMA Kuştepeli Y. THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH. ear. May 2003;3(1):47-57.
Chicago Kuştepeli, Yeşim. “THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH”. Ege Academic Review 3, no. 1 (May 2003): 47-57.
EndNote Kuştepeli Y (May 1, 2003) THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH. Ege Academic Review 3 1 47–57.
IEEE Y. Kuştepeli, “THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH”, ear, vol. 3, no. 1, pp. 47–57, 2003.
ISNAD Kuştepeli, Yeşim. “THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH”. Ege Academic Review 3/1 (May 2003), 47-57.
JAMA Kuştepeli Y. THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH. ear. 2003;3:47–57.
MLA Kuştepeli, Yeşim. “THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH”. Ege Academic Review, vol. 3, no. 1, 2003, pp. 47-57.
Vancouver Kuştepeli Y. THE EFFECT OF NOMINAL GOVERNMENT DEFICITS ON ECONOMIC GROWTH. ear. 2003;3(1):47-5.