Implementation Of Inflation Targeting And Budget Deficit Performance In Emerging Countries: A Treatment Effect Evaluation

In this paper, we tried to examine whether the implementation of inflation targeting (IT) monetary policy and its discipline character allows reducing the budget deficit in emerging countries. To do this, we used the propensity score matching methodology to evaluate the treatment effect of IT on fis...

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Bibliographic Details
Published in:Journal of applied business research 2014, Vol.30 (4), p.1077
Main Authors: Kadria, Mohamed, Ben Aissa, Mohamed Safouane
Format: Article
Language:English
Subjects:
Budget deficit
Budget deficits
Central banks
Developing countries
Discipline
Economic development
Emerging powers
Empirical research
Fiscal policy
GDP
Gross Domestic Product
Inflation
Inflation rates
Inflation targeting
LDCs
Macroeconomics
Monetary policy
Studies
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Summary:In this paper, we tried to examine whether the implementation of inflation targeting (IT) monetary policy and its discipline character allows reducing the budget deficit in emerging countries. To do this, we used the propensity score matching methodology to evaluate the treatment effect of IT on fiscal discipline, in terms of budget deficit performance, in emerging countries has adopted this monetary policy framework. Our empirical analysis, conducted on a sample of 41 economies (20 IT and 21 non-IT economies) for the period from 1990 to 2010, shows that on average IT adoption has had a considerable and significant effect in reducing the budget deficit. Our results are confirmed by the robustness tests and corroborate the literature of disciplining effects of IT regime on the fiscal discipline.
ISSN:0892-7626
2157-8834
DOI:10.19030/jabr.v30i4.8656