 Coordination between monetary policy and fiscal policy for an inflation targeting emerging marketZelal Aktas (), Neslihan Kaya and Umit Ozlale Journal of International Money and Finance, 2010, vol. 29, issue 1, 123-138 Abstract: Several studies including Blanchard (2004) and Favero and Giavazzi (2004) imply that in emerging market economies, a tight monetary policy within an inflation-targeting framework could actually increase the price level due to the lack of fiscal discipline and the associated high risk premium. We extend their arguments in two ways. First, we introduce a semi structural model with time-varying parameters, where the risk premium is 'unobserved' and it is derived within the system. Such an approach fits better with the volatile nature of emerging market economies by allowing us to track down the time-varying effects of macroeconomic dynamics on both the model-consistent risk premium and the other key variables. Second, we obtain impulse response functions and analyze the implications of a tight monetary policy on major macroeconomic variables. Taking the Turkish economy as our reference point, we find that the arguments of Blanchard (2004) and Favero and Giavazzi (2004) seem to be valid. Keywords: Monetary; policy; Non-linear; state; space; models; Extended; Kalman; filter (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:29:y:2010:i:1:p:123-138 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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