ABSTRACT
The purpose of this research was to explicate the impacts of fiscal deficits, Gross Domestic Product (GDP), and expansionary money supply on the inflation rate (IR) over the period 1990–2020 for Colombia, Costa Rica, Mexico, and Turkey, which are among the upper middle-income countries in the OECD country group. Fiscal deficit and IR data were obtained from the Public Finance Statistics, the public database of the IMF; whereas GDP and expansionary money supply data were obtained from the World Bank’s WDI database. Upon examining the Hausman test for unit and time effects, a two-way fixed effect model is involved. According to the examination of the basic assumption tests, it is seen that an autocorrelation problem exists for the unit effect; whereas heteroscedasticity and cross-sectional dependence exist for the unit and time effects. Driscoll and Kraay’s (1998) estimator can accurately estimate the parameters using the pooled least squares (POLS) method, under the assumption that the error term is heteroscedastic, autocorrelated, and cross-sectional dependent. Furthermore, for fixed effects upon examining this estimator, an increase in GDP decreases the IR; whereas a rise in money supply enhances IR.
