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What Drives Prices in Egypt?An Analysis in Light of International Experience$
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Hanaa Kheir-El-Din

Print publication date: 2009

Print ISBN-13: 9789774163036

Published to Cairo Scholarship Online: September 2011

DOI: 10.5743/cairo/9789774163036.001.0001

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The Impact of Budget Deficit on Inflation in Egypt

The Impact of Budget Deficit on Inflation in Egypt

(p.143) CHAPTER 5 The Impact of Budget Deficit on Inflation in Egypt
What Drives Prices in Egypt?

Hanaa Kheir-El-Din

American University in Cairo Press

Theory and empirical evidence offers theoretical background and an empirical literature review of the relationship between budget and deficit and the inflationary process. If monetary policy is accommodative to a budget deficit, money supply will continue to rise for a long time; the aggregate demand schedule will shift to the right, causing output to increase above the natural level. If monetary policy is accommodative to a persistent budget deficit, the central bank may directly finance budget deficit by lending funds to the government to pay its bills; or else the central bank may purchase government debt at the time of issuance, or later in the course of open market operations. In the monetarist perspective, inflation is driven by money growth.

Keywords:   budget, deficit, inflation, monetary policy, money, central bank, government debt, Egypt

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