The Effect of Defence Expenditures on Inflation: The Case of Selected NATO Countries

The impact of defence expenditures on inflation in selected NATO countries was analysed, taking structural breaks into account in this study. The implementation covers the USA, UK, France, Germany, Italy, ranked first to fifth, and Türkiye, ranked 8th in defence expenditures in NATO. The analysis was executed using data from 1960 to 2022. In this respect, the question of whether defence expenditures create inflationary pressure was expanded with the Fourier function. This method integrates the effect of structural breaks into the model by considering and reviewing the ARDL Bounds Test and ADL Cointegration techniques. Consequently, the findings showed that defence expenditures increased inflation in the USA. However, there was no significant effect in the other examined countries. This case suggested that the impact of defence expenditures on inflation greatly differs from country to country.