Inflation Targeting and Fiscal Rules: Do Interactions and Sequencing Matter?
May 28, 2014
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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.
Subject: Fiscal policy, Fiscal rules, Fiscal stance, Inflation, Inflation targeting, Monetary policy, Prices
Keywords: Africa, budget constraint, dummy variable, fiscal rules, Fiscal stance, FR adoption, government stability, Inflation, inflation rate, Inflation targeting, institutional reform sequencing, IT adoption, IT framework, monetary policy, sequence IT-first-then-FR, WP
Pages:
36
Volume:
2014
DOI:
Issue:
089
Series:
Working Paper No. 2014/089
Stock No:
WPIEA2014089
ISBN:
9781498322379
ISSN:
1018-5941
