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Deficits, money and inflation

Authors
Journal
Journal of Monetary Economics
0304-3932
Publisher
Elsevier
Publication Date
Volume
7
Issue
1
Identifiers
DOI: 10.1016/0304-3932(81)90057-x
Disciplines
  • Economics
  • Political Science

Abstract

Abstract This paper examines the interrelationships between monetary and fiscal policy. Specifically, it seeks to determine whether Government budget deficits influence monetary growth. Using a money supply model originally developed by Barro, we find that deficits have had a significant impact on the growth of the U.S. money supply throughout most of the period since 1961. Such a relationship need not always hold. It depends on whether government deficits place upward pressure on interest rates and whether the central bank monetizes the debt in an effort to stabilize interest rates.

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