Do fiscal deficits cause inflation? Evidence from Suriname

Authors

DOI:

https://doi.org/10.3326/pse.49.1.6

Keywords:

inflation, fiscal balance, money supply, SVAR

Abstract

This study examines the impact of the fiscal balance on headline inflation in Suriname. Historically, Suriname coped with multiple episodes of high inflation. A structural vector autoregression (SVAR) framework with annual data from 1961 to 2022 is used to assess the transmission of fiscal shocks to consumer prices. In addition, the analysis takes into account commodity prices, money supply, the exchange rate, and output growth. The empirical analysis reveals that exchange-rate shocks are the primary driver of inflation. Energy commodity price shocks also induce price pressures, in contrast to non-energy commodity price shocks. Fiscal shocks do not affect inflation directly. Nonetheless, there is evidence that these shocks do affect the exchange rate substantively. The results of this study emphasize the importance of exchange-rate stability, while fiscal discipline can alleviate exchange-rate and inflationary pressures.

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Published

2025-03-11

Issue

Vol. 49 No. 1 (2025)

Section

Articles

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Copyright (c) 2025 Gavin Ooft

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How to Cite

Do fiscal deficits cause inflation? Evidence from Suriname. (2025). Public Sector Economics - Submission Site, 49(1), 153-179. https://doi.org/10.3326/pse.49.1.6