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

Published On: 2020-09-04 17:14:17

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Author: Amritkant Mishra

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

Keywords: Fiscal deficit, food inflation, SVAR

JEL Codes: E52, E60, H61, H63


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.


Indian Journal of Economics and Development

Volume 16 No. 2, 2020, 165-172


Indexed in Clarivate Analytics (ESCI) of WoS