Do smaller budget deficits and inflation targets lower disinflation costs?
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.
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Volume (Year): 7 (2003)
Issue (Month): ()
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