The impact of budget deficit on inflation

Albana GJONI (KARAMETA), PhD, Holta KORA (BAKO), PhD & Flutura KALEMI, Prof. Dr.

Abstract Policymakers from time to time are concerned about the relationship between government budget deficits and inflation. The concerning effect is that the government will try to finance its deficits by borrowing or by printing money. There seems to be a relationship between a large public debt and the economy’s level of inflation. Do government budget deficits lead to higher inflation? This issue has recently been one of the bigest worries of governments and researchers. This research aims to define and explain a link 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. This study takes in consideration these indicators mainly through econometric model, by considering indicators a function of each other. 
Key words budget deficit, inflation, money supply, public debt, monetary, policy, macroeconomic indicator