ANALYSIS OF THE RELATIONSHIP BETWEEN INFLATION, BUDGET DEFICIT AND MONEY SUPPLY IN TURKEY BY ARDL APPROACH: 1980-2017

Year 2019, Volume: 6 Issue: 3, 297 - 306, 28.07.2019

Begüm Erdil Şahin

https://doi.org/10.15637/jlecon.6.018

Abstract

Inflation is considered as a monetary phenomenon and its increase is linked
with money supply according to the Monetarist view. In other words, the
increase in budget deficits leads to an increase in money supply and as a
result, inflation rates rise. Inflation is based on fiscal policies rather than
monetary policies according to Price Level Fiscal Theory. Accordingly,
increasing budget deficits leads to increases in loans, thus causes interest
rates to rise and consequently inflation rises as money supply increases. In
this study, the relationship between inflation, budget deficit and money supply
in Turkey is analyzed using the ARDL bounds testing approach for the 1980-2017
period. According to the empirical results, there was a positive and
significant relationship between inflation and budget deficit both in the long
and short term.

Keywords

Inflation, Deficit, Money Supply, Turkey, ARDL

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