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Keywords

budget deficit, inflation, money supply

Abstract

The aim of research is to define and explain a relation between macroeconomic indicators such as the budget deficit and inflation. Under consideration is taken the period between 1994 – 2012, a period which has had an intensity and greater attention by the internationals in terms of performance of the economy. The paper studies these indicators mainly through econometric model, by considering indicators a function of each other. Main hypothesis of this research is: “If we increase the budget deficit and money supply, the rate of inflation is expected to increase." Based on the inflation model only in relation with money supply, it results a positive results, this only for the money supply with a dynamic delay of 1. The opposite dynamic results without delay. In the extended model of inflation, its connection with the budget deficit, not only comes out as negative, but the level of determination for this relationship is very low. This has no theoretical consistency and, most importantly, is a very unclear link between these two indicators.

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