Abstract
The study aims to address public debt and government outflow affecting inflation in some of the countries of Southeast Europe, observing a combination of factors both theoretically and econometrically. The investigation included six (6) SEE countries, including the 2006-2020 timeframe, with 90 observations. The dynamic approach, the fixed effect, and the Arellano/Bond estimator were used to check the parameters considered in the study using panel data. Furthermore, the study also applied diagnostic tests such as the Sargan over-identifying restrictions and Pedroni test for cointegration. The results of the fixed effect and Arellano / Bond estimation demonstrate that public debt, current budget outflows, and capital budget outflows affect inflation, while overall budget outflows are insignificant. For further studies, it would be useful to apply other dynamic models by applying other specific factors, which will be considered as a useful contribution to the academic, research, and policy-making structures.
Highlights
The dynamics of inflation control are essential to the intention of monetary and fiscal policy
We have investigated whether these variables impact inflation, applying these indicators public debt, overall government outflows, current government outflows, and capital government investment
The component, which has been analyzed by many authors is public debt, the confirmed results show us that any public debt in the SEE countries affects the increase in inflation
Summary
The dynamics of inflation control are essential to the intention of monetary and fiscal policy. In recent decades the nexus between public debt and inflation, since public debt plays an important role in funding fiscal deficits, has arisen as a related area. Governments began to investigate if increasing levels of public debt affect inflation. Inflation pointing strategy was established by several central banks mainly because inflation is typically a monetary phenomenon. Several recent studies have deemed it outdated or unfounded. According to Sims (2016), persistent and growing fiscal deficit finance through government borrowings will eventually produce inflationary burdens, regardless of the policies followed by the Central Bank. Deficits supported by debt will require efficient coordination with the monetary authority to avoid excessive and volatile rates of inflation that may damage macroeconomic stability
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