 Fiscal Prerequisites for Inflation TargetingSabahat Zafar MPRA Paper from University Library of Munich, Germany Abstract: Inflation targeting has been gaining significant attention of policy makers during last thirty years, so far 38 countries have adopted inflation targeting regime to conduct their monetary policy operations. Successful implementation of this framework requires some prerequisites, the most important one is independence of central bank and non-observance of fiscal dominance. The paper analyzed whether inflation targeting regime is associated with lower fiscal deficit or debt levels, it has been identified that from the sample of 38 countries, 22 have reduced their deficit and 16 have lowered their debt level after adopting inflation targeting regime. The study also attempted to find the level of fiscal deficit that should be adhere by fiscal authorities before adopting inflation targeting regime. The system dynamic panel approach has been employed using panel data set of inflation targeted countries for the period ranged from 2000 till 2017. Based on the methodology developed by Catao and Terrones (2005), the study estimated the elasticity of inflation with respect to fiscal deficit to M1 ratio and used this elasticity to compute the level of fiscal deficit to M1 ratio for Pakistan’s economy. Keywords: Inflation targeting; Central Bank; Fiscal deficit (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:pra:mprapa:116254 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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