Are government deficits the prime cause of inflation? |
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Authors: | Ulrich R. Kohli |
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Affiliation: | University of Colorado, USA;Reserve Bank of Australia, Australia |
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Abstract: | We argue in this article that if government bonds are counted as part of private wealth, government budget deficits are a major cause of inflation, and the method chosen to finance the deficits (e.g., borrowing or monetary expansion) is of secondary importance. To illustrate this point we use a simple portfolio model that is then incorporated into a model of the Australian economy. The full model is specified in continuous time, and it is estimated by the full information maximum likelihood method (FIML) it is then used to simulate a number of fiscal shocks. |
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Keywords: | Address correspondence to: Ulrich Kohli Department of Economics University of Colorado Boulder CO 80309 USA. |
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