Impact of Budget Deficit on Inflation: A Case Study of Pakistan

Authors

  • Muhammad Hamza Forman Christian College, Lahore, Pakistan.
  • Muhammad Azhar Bhatti Pakistan Institute of Development Economics, Islamabad. https://orcid.org/0000-0002-6797-5131
  • Kokab Kiran The Islamia University of Bahawalpur, Pakistan.

DOI:

https://doi.org/10.52131/joe.2019.0101.0004

Keywords:

fiscal deficit, inflation, money supply

Abstract

The research is concerned with examining the effect of budget deficit on inflation a case of Pakistan economy. As inflation is one of the most prominent macro-economic indicator which tells us about how the prices in country are reacting and subsequently how other factors are being affected. So in this study we have analyzed the effect of budget deficit on inflation. As Pakistan is a developing nation where inflation and budget deficit are two major issues so for that reason we included the effect of budget deficit.  The dependent variable is inflation and independent variables are money supply, GDP growth, unemployment, official exchange rate and fiscal deficit. The data is from 1985 to 2017. For checking unit root we applied augmented dickey fuller test and the study applied the Auto Regressive Distributed Lag Model (ARDL) method. The data is taken from world development indicator and from Pakistan Economic Survey. The results conclude that budget deficit, GDP growth and money supply have positive impact while unemployment and official exchange rate have negative impact. The study suggests that the government should focus on generating new revenue sources rather the foreign financing.

Author Biographies

Muhammad Hamza, Forman Christian College, Lahore, Pakistan.

Mphil Scholar, Department of Economics.

Muhammad Azhar Bhatti, Pakistan Institute of Development Economics, Islamabad.

Mphil Scholar, Deparment of Statistics and Econometrics.

Kokab Kiran, The Islamia University of Bahawalpur, Pakistan.

MPhil Scholar, Department of Economics.

Downloads

Published

2019-06-30

How to Cite

Hamza, M., Bhatti, M. A., & Kiran, K. (2019). Impact of Budget Deficit on Inflation: A Case Study of Pakistan. IRASD Journal of Economics, 1(1), 42–58. https://doi.org/10.52131/joe.2019.0101.0004

Most read articles by the same author(s)