THE CAUSAL RELATIONSHIP BETWEEN THE BUDGET DEFICIT, INFLATION, AND MONEY SUPPLY IN JORDAN FROM 1992 TO 2021
This study aims to determine the causal relationship between Jordan’s budget deficits, inflation rate, and money supply using annual data from 1992 to 2021. Using the unit root, cointegration, and Granger causality test, it was concluded that there is a long-term relationship between the budget deficit, inflation, and money supply. Also, the study found a one-direction relationship between the budget deficit and inflation, and there is no causal relationship between the money supply and inflation. Inflation is also associated with the increase in the money supply. The results show that inflation is primarily caused by increasing of money supply. The study recommends being cautious about the budget deficit, money supply, government spending, and interest rate because they can lead to high economy inflation, mainly, when using fiscal and monetary policies to stimulate the economy on the consideration that the budget deficit, government spending, and interest rate are statistically considered one of influential factors for inflation in the estimation process.
Budget Deficit, Inflation, Monetary Supply, Causality, Jordan