Fiscal Policy and Inflation Dynamics under Alternative Exchange Rate Regimes: An ARDL Analysis of SAU, UAE, US, and UK (1990-2024)

Abstract

This dissertation examines the relationship between fiscal policy and inflation across four economies operating under different Exchange regimes: SAU and UAE (currency pegs), and US and UK (floating rates). Using annual data from 1990-2024 and the Autoregressive Distributed Lag (ARDL) bounds testing approach, this study tests whether fiscal policy systematically affects inflation within different institutional contexts. The findings reveal significant variation in fiscal-inflation relationships across institutional contexts. Fixed regime economies show no systematic associations between fiscal policy and inflation, with SAU exhibiting rejected cointegration and UAE yielding inconclusive results. Among floating economies, the US demonstrates confirmed cointegration with a significant negative fiscal-inflation relationship, while the UK shows strong cointegration evidence but no systematic fiscal influence on inflation. These results indicate that institutional frameworks and structural characteristics may be more important than exchange rate regime classifications in determining fiscal-inflation transmission, with Gulf states relying on structural buffers and advanced economies depending on institutional credibility and market discipline mechanisms.