Examination of the causal relationship between Public Expenditure and inflation in the Libyan economy

Abstract

This Study aimed to examine the causal relationship between Public Expenditure and inflation, expressed as an index of consumer prices, in the Libyan economy during the period (1970-2010) in the short term and the long run, for it was the use of standard methods of modern test stationary of the time series and  Co integration Error Correction model and causal Granger. The study found that Public Expenditure and inflation on a common complementary relationship, and that there is a long-run causal relationship trending from Public Expenditure to inflation.