We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
The inflationary effect of the budget deficit: does financial sector development matter?
- Authors
Aragaw, Abebe
- Abstract
This study aims to examine the budget deficit–inflation relationship, considering financial sector development and broad money supply as moderating and mediating variables. For this purpose, a panel data set ranging from polled mean group, mean group, and dynamic fixed effect estimation techniques are employed. Hence, the pooled mean group estimation result reveals that the budget deficit is inflationary. In addition, GDP per capita, the effective exchange rate, financial sector development, regulatory quality, and the interaction term of the budget deficit and financial sector development are significant determinants of inflation. The study further examines the role of the broad money supply as a mediating variable in the budget deficit–inflation relationship. The structural equation model results and the mediation effect tests confirmed a partial mediation effect of the broad money supply on the budget deficit–inflation relationship. Based on the findings, it is recommended to strengthen regulatory quality, reduce broad money supply, and improve financial sector development. By doing so, we can create a more stable and efficient economy that benefits everyone in the long run.
- Subjects
BUDGET deficits; MONEY supply; BUDGET; STRUCTURAL equation modeling; PANEL analysis; FOREIGN exchange rates
- Publication
Journal of Innovation & Entrepreneurship, 2024, Vol 13, Issue 1, p1
- ISSN
2192-5372
- Publication type
Article
- DOI
10.1186/s13731-024-00394-4