The Interdependence of Monetary and Fiscal Policy in Guatemala

Resumen

This paper analyzes the interdependence of monetary and fiscal policy in Guatemala using the intertemporal budget constraint of the government. The estimation of the fraction that backs the outstanding debt and the estimations of the deficit-inflation relationship for Guatemala by using DOLS and ARDL regressions respectively, indicate the existence of fiscal dominance in 1980s and 1990s with a statistically significant deficit-inflation relationship. Then it changed to a monetary dominance between 1999-2008 with no statistically significance deficit-inflation relationship. In the more recent period, 2008-2019, the results suggest evidence of fiscal dominance again, but with a wider confidence interval and a fiscal-deficit relationship not statistically significant, which may be related to insufficient data observations for this period.