Are money growth and inflation related to government deficits? Evidence from Taiwan (China)

In this paper I use a standard VAR framework to investigate the relationship among the government deficit, money growth and inflation in the Taiwanese economy using quarterly data from 1970:01–2000:04. The analysis does not provide strong evidence to support the hypothesis that a deficit causes money growth. Second, the result also indicates there is no significant association between a budget deficit and inflation. However, while testing the impulse-response functions, there is some evidence that money growth has an impact on inflation over 12–15 months.