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Inflation Targeting, Fiscal Rules and the Policy Mix: Cross‐effects and Interactions

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  • Jean‐Louis Combes
  • Xavier Debrun
  • Alexandru Minea
  • René Tapsoba

Abstract

We examine how inflation targeting (IT) and fiscal rules (FR) affect inflation and fiscal performance in a large panel of countries during 1990–2009. In line with theory, both FR and IT appear to shape monetary and fiscal outcomes. Significant cross‐effects seem to exist as IT strengthens fiscal performance, whereas the combination of FR and IT tends to be associated with more disciplined macroeconomic policies than if only one of these institutions operates. Our findings suggest that IT and FR affect the coordination of the policy mix, and point to potential benefits of reforming macroeconomic frameworks in a holistic fashion.

Suggested Citation

  • Jean‐Louis Combes & Xavier Debrun & Alexandru Minea & René Tapsoba, 2018. "Inflation Targeting, Fiscal Rules and the Policy Mix: Cross‐effects and Interactions," Economic Journal, Royal Economic Society, vol. 128(615), pages 2755-2784, November.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:615:p:2755-2784
    DOI: 10.1111/ecoj.12538
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