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Do smaller budget deficits and inflation targets lower disinflation costs?

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  • Durham, Benson

    () (Federal Reserve Board (Board of Governors of the Federal Reserve System))

Abstract

This article addresses some shortcomings in the empirical literature on disinflation costs. Namely, previous studies do not satisfactorily examine key fiscal and monetary policy practices that arguably affect policymaking credibility. These include the stock (and flow) of government debt, the issuance of inflation-indexed bonds, and the existence of explicit inflation targets. Examining data from 1957 to 2001, covering 78 higher- and lower-income countries, I find that the effects of credibility proxies are sensitive to research design. However, some data do support the hypothesis that governments with an incentive, rather than perhaps a publicized objective, to fight inflation achieve lower disinflation costs.

Suggested Citation

  • Durham, Benson, 2003. "Do smaller budget deficits and inflation targets lower disinflation costs?," Journal of Financial Transformation, Capco Institute, vol. 7, pages 25-29.
  • Handle: RePEc:ris:jofitr:1297
    as

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    More about this item

    Keywords

    Disinflation costs; fiscal policies; monetary policies; inflation-indexed bonds; inflation;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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