THE RELATIONSHIP BETWEEN BUDGET DEFICIT AND INFLATION IN SYRIA FOR THE PERIOD (1990-2010)

Government budget deficit has been one of the most critical issues in the countries' historical economic problems. The budget deficit-inflation relationship is not always obvious and it varies between countries. This paper investigates the long-run and the short-run relationship between budget deficit and inflation in Syria, by using annual data for the period of 1990-2010. We employ johanson test approach of co-integration to investigate the long-run relationship between budget deficit and inflation within the Vector error-correction model (VECM). The empirical results suggest that there is significant and positive long-run relationship between budget deficit and inflation in Syria, while it does not exist on the short-run.