Social and Behavioral Sciences Commons^™

Deficit Financing In Lcds: Evidence From South Asia, Muhammad K. Chowdhury

Khorshed Chowdhury

Fiscal policy triggers three distinct effects on the economy such as (1) interest rate effect (2) price effect and (3) exchange rate effect. A VAR system was developed to capture these effects in jive South Asian countries. Empirical results suggest that budgetary action does not have any perceptible influence ·on the interest rate of the sampled countries. In terms of the price effect, fiscal action has opposite effects in Bangladesh and India. Fiscal action tends to increase aggregate price level in India but reduces the price level in Bangladesh, although the magnitude is very small. For Pakistan the price effect …