The Relationship between Defense Spending and Inflation

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Abstract
The relationship between defense spending and inflation has been of interest to scholars and policymakers throughout much of the post-World War II era. Yet there is no agreement as to the exact nature of the relationship. We attempt to shed some light on this matter by identifying the alternative conceptualizations of the relationship between defense spending and inflation that appear in the literature and subjecting them to empirical examination using data for the 1956-1979 era from four major Western powers. No significant relationship between defense spending and inflation is discovered in the cases of the United States and the United Kingdom, whereas defense spending and inflation are found to be mutually related in the cases of France and the Federal Republic of Germany.

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