Abstracts Category : Other

The Fiscal Theory of the Price Level in Sub-Saharan Africa: A Structural Break Analysis

by Christian Tchamda

In this paper, I provide empirical evidence of the fiscal theory of the price level (FTPL) using sub-Saharan African countries. While the traditional view of the inflation is driven and explained by the quantity theory of money, the FTPL argues that the government deficit has an impact on the price level. However, the empirical literature of the FTPL is not extensive. This paper adds to this literature in that it substantiates this theory. I determine using primary balance and liabilities data when available to classify a country as under either a monetary dominant regime (the traditional view) or under a fiscally dominant regime (FTPL). Additionally, using the inflation data from these countries I perform a structural break analysis to determine whether a country experienced a significant change in regime between 1980 and 2005. I find that the U.S. immediately after World War II experienced a period that had the characteristics of a fiscally dominant regime. I also find that after the Accord of 1951, the regime switched to a monetary regime because the structural break analysis of the U.S inflation data detects a significant break year in 1952. In sub-Saharan African countries, Kenya switched from a monetary dominant regime to a fiscally dominant regime after 1994, its structural break year. Advisors/Committee Members: Joseph Santos.