Causal Relationship among Debt, GDP and Inflation in France

This paper examined the causal relationship among government debt, gross domestic product (GDP) and inflation in France using annual data from 1980 to 2010. The stationarity of these data series were first checked by ADF and PP tests for unit root hypothesis. Vector Autoregression (VAR) model and Granger causality test were further applied to analyze the casual relationship. The results indicated that there were bi-directional relationships between government debt and inflation, which is completely corresponding with the earlier comments in the literature and authenticates the evidences of the connection between government debt and inflation. While the unidirectional causality running from inflation to GDP and from government debt to GDP were also robustly confirmed.