Irina Bilan,

Department of Finance, Money and Public Administration,

Faculty of Economics and Business Administration,

"Alexandru Ioan Cuza"

Interconnections between Public Indebtedness

and Inflation

in Contemporary Economies

University of Iași,

Iasi, Romania,

E-mail: irina.bilan@uaic.ro

Angela Roman,

Department of Finance, Money and Public Administration,

Faculty of Economics and Business Administration,

"Alexandru Ioan Cuza"

University of Iași,

Iasi, Romania,

E-mail: aboariu@uaic.ro

ABSTRACT.This paper aims to analyze the specific interconnections established between public indebtedness and inflation, both from the perspective of considering inflation as a result of public borrowing and of voluntarily promoting inflation to reduce the (real) value of public debtand to ease its burden. It identifies the channels through which these effects are occurring, it determines the conditions of their manifestation and evaluates their relevance for different (developed and developing) contemporary economies. Although promoting irrational public borrowing may lead to inflation, such a correlation proved to be quite difficult to identify in the practice, especially for currently developed economies.

Received: June, 2014

1st Revision: September, 2014

Accepted: October, 2014

DOI:10.14254/2071-789X.2014/7-4/4

JEL Classification:E31, E51, H63

Keywords: public indebtedness, inflation, money supply, debt amortization.