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Inflation Targeting and Fiscal Rules: Do Interactions and Sequence of Adoption Matter?

  • René TAPSOBA

    ()

    (Centre d'Etudes et de Recherches sur le Développement International)

  • Alexandru MINEA

    (Centre d'Etudes et de Recherches sur le Développement International)

  • Jean-Louis COMBES

    ()

    (Centre d'Etudes et de Recherches sur le Développement International)

This paper analyzes the effects of Inflation Targeting (IT) and Fiscal Rules (FR) on fiscal behaviors and inflation dynamics. Its main novelty is twofold: first, it is the first study which accounts explicitly for the role of the interactions between IT and FR regarding their fiscal and inflationary effects. Second, it questions the optimality of the sequence of adoption of IT and FR. Using a wide panel of 152 developed and developing countries over the period 1990-2009, we find that adopting both IT and FR leads to better fiscal and monetary outcomes than adopting only FR or only IT. In addition, we highlight the dominance of the sequence which consists of introducing first FR before adopting IT with respect to the opposite sequence, regarding their fiscal and inflationary effects.

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Paper provided by CERDI in its series Working Papers with number 201223.

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Length: 29
Date of creation: 2012
Date of revision:
Handle: RePEc:cdi:wpaper:1370
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