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Inflation Targeting And Fiscal Rules
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Book Synopsis Inflation Targeting and Fiscal Rules by : Jean-Louis Combes
Download or read book Inflation Targeting and Fiscal Rules written by Jean-Louis Combes and published by International Monetary Fund. This book was released on 2014-05-28 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis “Monetary and Fiscal Rules in an Emerging Small Open Economy” by : Nicoletta Batini
Download or read book “Monetary and Fiscal Rules in an Emerging Small Open Economy” written by Nicoletta Batini and published by International Monetary Fund. This book was released on 2009-01-01 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a optimal rules-based interpretation of the 'three pillars macroeconomic policy framework': a combination of a freely floating exchange rate, an explicit target for inflation, and a mechanism than ensures a stable government debt-GDP ratio around a specified long run. We show how such monetary-fiscal rules need to be adjusted to accommodate specific features of emerging market economies. The model takes the form of two-blocs, a DSGE emerging small open economy interacting with the rest of the world and features, in particular, financial frictions It is calibrated using Chile and US data. Alongside the optimal Ramsey policy benchmark, we model the three pillars as simple monetary and fiscal rules including and both domestic and CPI inflation targeting interest rate rules alongside a 'Structural Surplus Fiscal Rule' as followed recently in Chile. A comparison with a fixed exchange rate regime is made. We find that domestic inflation targeting is superior to partially or implicitly (through a CPI inflation target) or fully attempting to stabilizing the exchange rate. Financial frictions require fiscal policy to play a bigger role and lead to an increase in the costs associated with simple rules as opposed to the fully optimal policy.
Book Synopsis Monetary Policy and Public Finances by : Mr.Christian H. Beddies
Download or read book Monetary Policy and Public Finances written by Mr.Christian H. Beddies and published by International Monetary Fund. This book was released on 1999-03-01 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper considers the interaction between the private sector, the monetary authority, and the fiscal authority, and concludes that unrestricted central bank independence may not be an optimal way to collect seigniorage revenues or stabilize supply shocks. Moreover, the paper shows that the implementation of an optimal inflation target results in optimal shares of government finances—seigniorage, taxes, and the spending shortfall—from society’s point of view but still involves suboptimal stabilization. Even if price stability is the sole central bank objective, a positive inflation target has important implications for the government’s finances, as well as for stabilization.
Book Synopsis Inflation Targeting and Fiscal Rules in Developing Countries by : René Tapsoba
Download or read book Inflation Targeting and Fiscal Rules in Developing Countries written by René Tapsoba and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is concerned with the role of Inflation Targeting (IT) and Fiscal Rules (FRs), as well as of their interactions, on macroeconomic environment. After laying the conceptual and empirical backgrounds of both these rules-Based policy frameworks (Chapter 1), the dissertation highlights new evidence on their macroeconomic consequences. First, IT adoption does help attracting more Foreign Direct Investment into Developing Countries (Chapter 2). Second, inthese countries, IT adoption provides strong incentives for governments to undertake reforms designed to improve the quality of institutions (Chapter 3). Third, the introduction of national-Level numerical FRs does stand as a credible remedy against fiscal indiscipline in these countries, all the more in politically stable economies and where the numberof FRs in place is important. But this discipline-Enhancing effect of FRs decreases with the time length since their adoption, and is weakened in the presence of supranational rules and in countries with more fragmented government. Interestingly, this effect varies with the type of rules: while Budget Balance Rules and Expenditure Rules have significant disciplineenhancing effects, the effect of Debt Rules proved not significantly different from zero (Chapter 4). The last three chapters of the thesis focus on the role of the interaction between IT and FRs, and to a broader extent, on the interplay between monetary and fiscal authorities. The first result that emerges is that IT, which is a framework for conducting monetary policy, proves also sufficiently binding for fiscal authorities to providing them with strong incentives for improving fiscal discipline, notably in developing countries (Chapter 5). In addition, on the one hand, IT and FRs act complementarily, as adopting both IT and FRs leads to better results in terms of running fiscal surpluses and in terms of bringing down average inflation than adopting only one of these two frameworks. On the other hand, the sequence which consists of introducing FRs first before adopting IT yields better inflationary and fiscal performances than the opposite sequence (Chapter 6). Finally, better Policy Mix coherence, that is, better coordination between monetary and fiscal policies, is conducive to higher economic growth in the Economic Community of West African States (ECOWAS) (Chapter 7).
Book Synopsis Simple Monetary Rules Under Fiscal Dominance by : Michael Kumhof
Download or read book Simple Monetary Rules Under Fiscal Dominance written by Michael Kumhof and published by International Monetary Fund. This book was released on 2007-12 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper asks whether an aggressive monetary policy response to inflation is feasible in countries that suffer from fiscal dominance, as long as monetary policy also responds to fiscal variables. We find that if nominal interest rates are allowed to respond to government debt, even aggressive rules that satisfy the Taylor principle can produce unique equilibria. But following such rules results in extremely volatile inflation. This leads to very frequent violations of the zero lower bound on nominal interest rates that make such rules infeasible. Even within the set of feasible rules the optimal response to inflation is highly negative, and more aggressive inflation fighting is inferior from a welfare point of view. The welfare gain from responding to fiscal variables is minimal compared to the gain from eliminating fiscal dominance.
Book Synopsis Do Fiscal Rules Cause Better Fiscal Balances? A New Instrumental Variable Strategy by : Francesca G Caselli
Download or read book Do Fiscal Rules Cause Better Fiscal Balances? A New Instrumental Variable Strategy written by Francesca G Caselli and published by International Monetary Fund. This book was released on 2019-03-05 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates the causal effect of fiscal rules on fiscal balances in a panel of 142 countries over the period 1985-2015. Our instrumental variable strategy exploits the geographical diffusion of fiscal rules across countries. The intuition is that reforms in neighboring countries may affect the adoption of domestic reforms through peer pressure and imitational effects. We find that fiscal rules correlate with lower deficits, but the positive link disappears when endogeneity is correctly addressed. However, when considering an index of fiscal rules’ design, we show that well-designed rules have a statistically significant impact on fiscal balances. We conduct several robustness tests and show that our results are not affected by weak instrument problems.
Book Synopsis The Inflation-Targeting Debate by : Ben S. Bernanke
Download or read book The Inflation-Targeting Debate written by Ben S. Bernanke and published by University of Chicago Press. This book was released on 2007-11-01 with total page 469 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past fifteen years, a significant number of industrialized and middle-income countries have adopted inflation targeting as a framework for monetary policymaking. As the name suggests, in such inflation-targeting regimes, the central bank is responsible for achieving a publicly announced target for the inflation rate. While the objective of controlling inflation enjoys wide support among both academic experts and policymakers, and while the countries that have followed this model have generally experienced good macroeconomic outcomes, many important questions about inflation targeting remain. In Inflation Targeting, a distinguished group of contributors explores the many underexamined dimensions of inflation targeting—its potential, its successes, and its limitations—from both a theoretical and an empirical standpoint, and for both developed and emerging economies. The volume opens with a discussion of the optimal formulation of inflation-targeting policy and continues with a debate about the desirability of such a model for the United States. The concluding chapters discuss the special problems of inflation targeting in emerging markets, including the Czech Republic, Poland, and Hungary.
Book Synopsis It’s Never Different: Fiscal Policy Shocks and Inflation by : Mr. Serhan Cevik
Download or read book It’s Never Different: Fiscal Policy Shocks and Inflation written by Mr. Serhan Cevik and published by International Monetary Fund. This book was released on 2023-05-12 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the impact of fiscal shocks on inflation, using a large panel of 139 countries over the period 1970–2021. First, both headline and core measures of inflation increase in response to expansionary shifts in the fiscal policy stance. Second, we split the sample and observe an intriguing pattern that fiscal policy shocks are primarily significant in developing countries. Third, the inflationary impact of fiscal policy shocks is dependent on fiscal space and economic conditions, as well as monetary policy type, exchange rate regimes and fiscal rules, at the time of the shock. We confirm these results by using the narrative approach and forecast errors, as well as cyclically- adjusted data on government revenues and non-interest expenditures, to identify exogenous changes in fiscal policy. The analysis has several important policy implications: (i) fiscal policy is a critical anchor of macroeconomic stability; (ii) fiscal policy should be used with care in aggregate demand management as it has significant effects on inflation, which are highly dependent on fiscal space and economic conditions; and (iii) flexible exchange rates and rule-based policymaking provide greater resilience to inflationary shocks.
Book Synopsis Inflation Targeting As a Framework for Monetary Policy by : International Monetary Fund
Download or read book Inflation Targeting As a Framework for Monetary Policy written by International Monetary Fund and published by International Monetary Fund. This book was released on 1998-10-02 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation distorts prices, erodes savings, discourages investment,stimulates capital flight, inhibits growth, and makes economic planning anightmare. During the past decade, several advanced economies have takena new approach to the age-old problem of controlling inflation throughmonetary policy known as "inflation targeting." This pamphlet explainsthe requirements of putting the new policy in place, the experience of the countries that have tried it, and whether it has applicability todeveloping countries.
Book Synopsis Inflation Targeting and Country Risk by : Mr.Armand Fouejieu
Download or read book Inflation Targeting and Country Risk written by Mr.Armand Fouejieu and published by International Monetary Fund. This book was released on 2013-01-23 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The sovereign debt crisis in Europe has highlighted the role of country risk premia as a link between countries’ fiscal and external balances, financial conditions and monetary policy. The purpose of this paper is to estimate how adoption of inflation targeting (IT) affects spreads. It is hypothesized that country risk premia for IT countries (especially among emerging market economies) may be lower than for other countries owing to greater policy predictability and more stable long-term inflation. The findings suggest that IT reduces the risk premium, both through adoption of the IT regime, and through the observed track record in stabilizing inflation.
Book Synopsis Inflation Targeting and Financial Stability by : Michael Heise
Download or read book Inflation Targeting and Financial Stability written by Michael Heise and published by Springer. This book was released on 2019-02-26 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the financial crisis of 2008/09, the world’s major central banks have been struggling to return their economies to higher growth and to reach their inflation targets. This concise book analyzes the importance of central bank policies for the economy, and specifically investigates the reasons why they have failed to steer inflation as desired. The author, the Chief Economist at Allianz SE, argues that, in an environment of great uncertainty concerning the pass-through of monetary stimulus to the economy, central banks should not focus too narrowly on inflation targets, but should increasingly take the side effects of their actions into account. In particular, he contends that they must seek to minimize the risk of financial booms and busts in order to maximize long-term growth and prosperity. Building on existing research and contributing to the current debate, the book offers a valuable reference guide and food for thought for policymakers, professionals and students alike.
Book Synopsis Monetary Policy Rules by : John B. Taylor
Download or read book Monetary Policy Rules written by John B. Taylor and published by University of Chicago Press. This book was released on 2007-12-01 with total page 460 pages. Available in PDF, EPUB and Kindle. Book excerpt: This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.
Book Synopsis Inflation Targeting as a Framework for Monetary Policy by : Guy Debelle
Download or read book Inflation Targeting as a Framework for Monetary Policy written by Guy Debelle and published by International Monetary Fund. This book was released on 1998-10-02 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Copyright: International Monetary Fund.
Book Synopsis Country Experiences with the Introduction and Implementation of Inflation Targeting by : Inci Ötker
Download or read book Country Experiences with the Introduction and Implementation of Inflation Targeting written by Inci Ötker and published by International Monetary Fund. This book was released on 2009 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is the tenth chapter of a forthcoming monograph entitled, "On Implementing Full- Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." It describes the experiences of a number of countries with the introduction and implementation of inflation targeting regimes. It discusses their motivation for introducing IT; how they fared in meeting the various conditions that some have argued are needed in advance of introducing IT; how they transitioned to a full-fledged IT framework and coordinated their preparations with other economic policies and reforms; the benefits they gained by adopting IT; the challenges they faced in implementation; and the lessons from their experiences.
Book Synopsis U.S. and Euro Area Monetary and Fiscal Interactions During the Pandemic: A Structural Analysis by : Andrew Hodge
Download or read book U.S. and Euro Area Monetary and Fiscal Interactions During the Pandemic: A Structural Analysis written by Andrew Hodge and published by International Monetary Fund. This book was released on 2022-11-11 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper employs a two-country New Keynesian DSGE model to assess the macroeconomic impact of the changes in monetary policy frameworks and the fiscal support in the U.S. and euro area during the pandemic. Moving from a previous target of “below, but close to 2 percent” to a formal symmetric inflation targeting regime in the euro area or from flexible to average inflation targeting in the U.S. is shown to boost output and inflation in both regions. Meanwhile, the fiscal packages approved in the U.S. and the euro area, and a slower withdrawal of fiscal support in the euro area, have a similar impact on output and inflation as changing the monetary policy frameworks . Simultaneously implementing these policies is mutually reinforcing, but insufficient to fully explain the unexpected increase in core inflation during 2021.
Book Synopsis Inflation Targeting Lite by : Mr.Mark R. Stone
Download or read book Inflation Targeting Lite written by Mr.Mark R. Stone and published by International Monetary Fund. This book was released on 2003-01-01 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation targeting lite (ITL) countries float their exchange rate and announce an inflation target, but are not able to maintain the inflation target as the foremost policy objective. This paper identifies 19 emerging market countries as practitioners of ITL. They seem to focus mainly on bringing inflation into the single digits and maintaining financial stability. ITL can be viewed as a transitional regime aimed at buying time for the implementation of the structural reforms needed for a single credible nominal anchor. The important policy challenges for an ITL central bank include whether or not to precommit to a single anchor.
Book Synopsis Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries by : International Monetary Fund
Download or read book Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries written by International Monetary Fund and published by International Monetary Fund. This book was released on 2015-10-23 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past two decades, many low- and lower-middle income countries (LLMICs) have improved control over fiscal policy, liberalized and deepened financial markets, and stabilized inflation at moderate levels. Monetary policy frameworks that have helped achieve these ends are being challenged by continued financial development and increased exposure to global capital markets. Many policymakers aspire to move beyond the basics of stability to implement monetary policy frameworks that better anchor inflation and promote macroeconomic stability and growth. Many of these LLMICs are thus considering and implementing improvements to their monetary policy frameworks. The recent successes of some LLMICs and the experiences of emerging and advanced economies, both early in their policy modernization process and following the global financial crisis, are valuable in identifying desirable features of such frameworks. This paper draws on those lessons to provide guidance on key elements of effective monetary policy frameworks for LLMICs.
