Do Budget Deficits Cause Inflation? Evidence from Albania

Abstract

The basic purpose of this paper is to analyze this relationship among budget deficit and inflation for Albania. As many cases in history have shown that fiscal imbalances result in inflation problems. Empirical studies indicate strong evidence that budget deficits financed through monetarism and a rising money supply lead to higher inflation. The effect of budget deficits to cause inflation is depended on the means by which it is financed and the impact on aggregate demand. In this paper, the budget deficits and inflation relationships are studied by using data’s of Consumer Price Indexes and Budget Deficits of Albania. Data for the time period 1996-2008 are taken for into consideration. The dependent variable is CPI. To find the empirical evidence on these data regression analysis is used.

DOI: 10.5901/ajis.2013.v2n9p764v