Does inflation targeting decrease the primary budget deficit in emerging markets? An empirical evidence
by Mohamed Kadria; Mohamed Safouane Ben Aissa
International Journal of Monetary Economics and Finance (IJMEF), Vol. 8, No. 1, 2015

Abstract: This paper tries to extend empirically the literature disciplining effect of inflation targeting (IT) monetary policy on fiscal policy. Based on the previous studies including Abo-Zaid and Tuzemen (2011) and Kadria and Ben Aissa (2014) as well as the dynamic panel method (S-GMM) and the treatment effect approach, our contribution is then to evaluate the effect of the IT's adoption by emerging markets on their budgetary discipline in terms of primary budget deficit performance. Our empirical analysis, conducted on a sample of 34 economies (13 IT and 21 non-IT economies) for the period from 1990 to 2010, show that on average IT adoption has had a significant effect in reducing the primary deficit in emerging countries that have adopted this monetary policy framework.

Online publication date: Thu, 30-Apr-2015

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