Download or read book The U.S. Budget Deficit, Inflation and Exchange Rate written by Orhan Kara and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study further contributes to the literature by applying ARDL and error correction models to the U.S. data between 1973 and 2010 to find the relationship and the effect of the U.S. budget deficit and inflation on the exchange rate. The conclusions reveal that there is a significant relationship between inflation and exchange rate. Inflation causes the dollar to depreciate in both short and long run. However, that there is no significant and direct relationship between budget deficit and exchange rate. Furthermore, increases in interest rate and income lead to appreciation of the currency while a decrease in them produces depreciation in the currency in nominal and real exchange rates. Finally, the effect of inflation on the exchange rate is similar regardless of producer price index or consumer price index is used.