Modeling the relationship between budget deficits, money supply and inflation in Fiji

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Abstract

For Fiji, which has been suffering persistent deficits since independence, determining the relationships between inflation, budget deficits, money supply, output, and import prices is essential. We find that inflation, deficits and money supply are cointegrated when inflation is the endogenous variable, and the long-run elasticities confirm that money supply and deficits induce inflation. While there is a short-run, unidirectional causality running from money supply to inflation and a bi-directional causality between money supply and budget deficits, in the long run both money supply and deficits 'Granger-cause' inflation.

Original languageEnglish
Pages (from-to)103-116
Number of pages14
JournalPacific Economic Bulletin
Volume21
Issue number2
Publication statusPublished - 2006
Externally publishedYes

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