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

Author

Listed:
  • René TAPSOBA

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

  • Alexandru MINEA

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

  • Jean-Louis COMBES

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

Abstract

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.

Suggested Citation

  • René TAPSOBA & Alexandru MINEA & Jean-Louis COMBES, 2012. "Inflation Targeting and Fiscal Rules: Do Interactions and Sequence of Adoption Matter?," Working Papers 201223, CERDI.
  • Handle: RePEc:cdi:wpaper:1370
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    References listed on IDEAS

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    Cited by:

    1. Kadria, Mohamed & Ben Aissa, Mohamed Safouane, 2016. "Inflation targeting and public deficit in emerging countries: A time varying treatment effect approach," Economic Modelling, Elsevier, vol. 52(PA), pages 108-114.

    More about this item

    Keywords

    Inflation Targeting; Fiscal rules; Interactions; Sequence of Adoption;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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