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

Jean-Louis Combes, Alexandru Minea and René Tapsoba

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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.

Keywords: Inflation Targeting; Fiscal rules; Interactions; Sequence of Adoption (search for similar items in EconPapers)
Date: 2012-07-03
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00714243
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Working Paper: Inflation Targeting and Fiscal Rules: Do Interactions and Sequence of Adoption Matter? (2012)
Working Paper: Inflation Targeting and Fiscal Rules: Do Interactions and Sequence of Adoption Matter? (2012)
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