Assessment of the effects of fiscal deficit financing on inflation. The chilean, mexican and colombian cases

Abstract

This paper aims to determine whether the different forms of financing the budget deficits of the Chilean, Mexican and Colombian governments have effects on inflation. For that purpose, the variables financing the fiscal deficit are described, such as seigniorage, internal and external financing, and their respective relationship to inflation; furthermore, an econometric model was estimated using the panel data methodology. The results allow us to infer that seigniorage, internal and external financing of fiscal deficit does not generate inflation in the three economies. In this sense, it can be argued that the priority of the monetary policy of the central banks of the countries in question is to achieve and maintain low inflation rates, which prevents their populations from losing purchasing power over time.