Chapter

The Impact of Budget Deficit on Inflation in Egypt

Hanaa Kheir-El-Din

in What Drives Prices in Egypt?

Published by American University in Cairo Press

Published in print November 2009 | ISBN: 9789774163036
Published online September 2011 | e-ISBN: 9781617970344 | DOI: http://dx.doi.org/10.5743/cairo/9789774163036.003.0006
The Impact of Budget Deficit on Inflation in Egypt

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Theory and empirical evidence offers theoretical background and an empirical literature review of the relationship between budget and deficit and the inflationary process. If monetary policy is accommodative to a budget deficit, money supply will continue to rise for a long time; the aggregate demand schedule will shift to the right, causing output to increase above the natural level. If monetary policy is accommodative to a persistent budget deficit, the central bank may directly finance budget deficit by lending funds to the government to pay its bills; or else the central bank may purchase government debt at the time of issuance, or later in the course of open market operations. In the monetarist perspective, inflation is driven by money growth.

Keywords: budget; deficit; inflation; monetary policy; money; central bank; government debt; Egypt

Chapter.  10309 words.  Illustrated.

Subjects: Political Economy

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