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Inflation Targeting and Public Deficit in Emerging Countries: A Time Varying Treatment Effect Approach

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  • Kadria, Mohamed
  • Ben Aissa, Mohamed Safouane

Abstract

Several studies including Minea,Tapsoba and Villieu(2012) and Lucotte (2012) claim that in emerging countries, the adoption of inflation targeting(IT) monetary policy and its discipline character allow intensifying their efforts to collect tax revenue and/or expenditure rationalization, and allows the reduction of their budget deficits (Kadria and Ben Aissa, 2014). But, the lag in the effect of monetary policy contains vital information for the policy evaluation (Fang and Miller, 2011). Hence, our contribution to the previous literature is then to evaluate the time varying treatment effect of the IT's adoption by emerging countries on their budgetary discipline in terms of reducing or mastering the public deficit. To do this, we used the propensity score matching approach in order to take account of this "lag effect" or from this effect throughout time. Our empirical analysis, conducted on a sample of 41 economies (20 IT and 21 non-IT economies) for the period from 1990 to 2010, shows that the lag in effect of IT on public deficit performance proves to be shorter and gradual for emerging countries that have adopted this monetary policy framework and our conclusions corroborate the literature disciplining effect of IT on fiscal policy.

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  • Kadria, Mohamed & Ben Aissa, Mohamed Safouane, 2014. "Inflation Targeting and Public Deficit in Emerging Countries: A Time Varying Treatment Effect Approach," MPRA Paper 57442, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:57442
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    Cited by:

    1. Kahia, Montassar & Ben Aissa, Mohamed Safouane & kadria, Mohamed, 2014. "Do renewable energy policies promote economic growth? A nonparametric approach," MPRA Paper 80751, University Library of Munich, Germany.
    2. Balima, Wenéyam Hippolyte & Combes, Jean-Louis & Minea, Alexandru, 2017. "Sovereign debt risk in emerging market economies: Does inflation targeting adoption make any difference?," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 360-377.
    3. repec:eee:ecofin:v:44:y:2018:i:c:p:44-61 is not listed on IDEAS
    4. Valera, Harold Glenn A. & Holmes, Mark J. & Hassan, Gazi M., 2017. "How credible is inflation targeting in Asia? A quantile unit root perspective," Economic Modelling, Elsevier, vol. 60(C), pages 194-210.
    5. Perevyshin, Yuri, 2017. "Peculiarities of Interaction of Monetary and Fiscal Policy Under the Inflation Targeting Regime," Working Papers 031711, Russian Presidential Academy of National Economy and Public Administration.
    6. repec:eee:finlet:v:24:y:2018:i:c:p:263-272 is not listed on IDEAS

    More about this item

    Keywords

    Time lag; inflation targeting; public deficit; time varying treatment effect evaluation; propensity score matching; emerging countries.;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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