Effects of Budget Deficits on Inflation, Economic Growth and Interest Rates: Applications of Turkey in 1980-2013 Period

Abstract

The purpose of this study is to investigate the effects of budget deficits on inflation, economic growth and interest rates during the years 1980-2013 in Turkey. Long-term co-integration correlation between budget deficit and inflation, budget deficit and GDP, and budget deficit and interest rates were tested by using Johansen co-integration test. Acquired results didn’t indicate any significant long-term co-integration correlation between budget deficits and inflation, GDP, and interest rate. Causality correlation was tested by Granger Causality Test. From the results of this test, a casual correlation was found between budget deficits and interest rates and the direction of such correlation was from interest rate toward budget deficits. Meaning, interest rates have significant effects on budget deficits