An In-Depth Economic Inquiry into the Relationship of GDP Growth, Money Supply, and Budget Deficits on Inflationary Trends in Yemen

The economy of Yemen plays a central role in shaping the country’s development path, yet it remains heavily constrained by conflict, structural weaknesses, and fiscal imbalances. Persistent challenges such as reliance on limited revenues, currency instability, and high inflation continue to hinder sustainable growth and economic stability. This study examines the persistent budget deficit in Yemen and its relationship with inflation, with a particular focus on the roles of money supply and global domestic product (GDP) growth. Using secondary quantitative data and time series analysis spanning the period from 1990 to 2023. The research employs the Autoregressive Distributed Lag (ARDL) methodology to investigate the interdependencies among key macroeconomic variables. The empirical findings reveal a positive and statistically significant relationship between money supply and inflation, suggesting that monetary expansion exerts upward pressure on price levels. Similarly, the budget deficit is found to contribute positively to inflation, reinforcing concerns about deficit-financed spending. In contrast, GDP ary pressures. These results carry important policy implications for Yemen: namely, the need to prioritize productive public investment, implement comprehensive tax reforms, and adopt measures to curb excessive public expenditure. Additionally, fostering a supportive environment for innovation and entrepreneurship is essential for promoting sustainable economic growth and achieving long-term price stability. This study provides novel insights into the complex dynamics of fiscal and monetary policy within the context of a fragile and emerging economy.