Inflation Targeting and Fiscal Rules: Do Interactions and Sequencing Matter?

Author/Editor: Jean-Louis Combes ; Xavier Debrun ; Alexandru Minea ; Rene Tapsoba
Publication Date: May 28, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: The paper examines the joint impact of inflation targeting (IT) and fiscal rules (FR) on fiscal behavior and inflation in a broad panel of advanced and developing economies over the period 1990-2009. The main contribution of the paper is to show that, as suggested by the theoretical literature, interactions between FR and IT matter a great deal for policy outcomes. Specifically, the combination of FR and IT appears to deliver more disciplined macroeconomic policies than each of these institutions in isolation. In addition, the sequencing of the monetary and fiscal reforms plays a role: adopting FR before IT delivers stronger results than the reverse sequence.
Series: Working Paper No. 14/89
Subject(s): Inflation targeting | Fiscal rules | Fiscal policy | Macroprudential Policy | Monetary policy | Economic models

Publication Date: May 28, 2014
ISBN/ISSN: 9781498322379/1018-5941 Format: Paper
Stock No: WPIEA2014089 Pages: 36
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