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Tracking the Transmission Channels of Fiscal Deficit and Food Inflation Linkages: A Structural VAR Approach

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Indian Journal of Economics and Development
Volume 16 No. 2, 2020, 165-172
DOI: https://doi.org/10.35716/IJED/19129
Indexed in Clarivate Analytics (ESCI) of WoS

Amritkant Mishra

Assistant Professor, Department of Economics, CHRIST (Deemed to be University), Delhi NCR Campus, Marium Nagar, Ghaziabad-201003 (Uttar Pradesh)

E-mail: amritkant.mishra@christuniversity.in

ABSTRACT
This empirical analysis aspired to unearth the transmission channels of fiscal deficit and food inflation linkages in the Indian perspective by reasonably exerting the data for 1991 to 2017. The precise results of structural vector autoregressive (SVAR) analysis proffered that there were three different mechanisms of transmission such as consumption, general inflation, and import channels that led to food inflation in response to the high fiscal deficit. The first channel revealed that government deficit spending had a positive impact on income which further led to food inflation through surging the household consumption expenditure. It was concluded that fiscal deficit passed through general inflation finally leading to a food price surge in the economy and seemed to work as cost-push inflation for the food and agricultural industry. The outcome also revealed that the impact of fiscal deficit passed to food inflation through external linkages such as import and export.

Keywords
Fiscal deficit, food inflation, SVAR.

JEL Codes
E52, E60, H61, H63.

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