Abstract
The majority of macroeconomic theories assume that budget deficits are the causes of macroeconomic instability and inflation. With the implementation of the inflation targeting strategy, this relationship was limited and sometimes it has not been empirically justified in emerging countries. In this paper, our aim is to show the effect of the inflation targeting policy on inflation or hyperinflation, economic growth and budget deficits. In empirical work, we use a sample of 50 emerging economies, which 30 countries are not yet adopted inflation targeting and 20 countries that adopt this strategy for the period 1980–2014. The findings show that inflation targeting contributes to the reduction of hyperinflation and budget deficits in emerging countries.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Abbas, S. A., Belhocine, N., El Ganainy, A., & Horton, M. (2010). A historical public debt database (IMF Working Papers 10/245). Washington: International Monetary Fund.
Amato, J. D., & Gerlach, S. (2002). Inflation targeting in emerging market and transition economies: Lessons after a decade. European Economic Review, 46(4–5), 781–790.
Ball, L., & Sheridan, N. (2003). Does inflation targeting matter? (NBER Working Paper 9577).
Ball, L., & Sheridan, N. (2005). Does inflation targeting matter? In B. S. Bernanke & M. Woodford (Eds.), The Inflation Targeting Debate, NBER Studies in Business Cycles (Vol. 32). Chicago: University of Chicago Press.
Batini, N., & Laxton, D. (2006). Under what conditions can inflation targeting be adopted? The experience of emerging markets (Central Bank of Chile Working Papers No 406).
Bernanke, B. S., & Mishkin, F. S. (1997). Inflation targeting: A new framework for monetary policy? Journal of Economic Perspectives, 11(2), 97–116.
Bernanke, B. S., Laubach, T., Mishkin, F. S., & Posen, A. S. (1999). Inflation targeting: Lessons from the international experience. Princeton: Princeton University Press.
Blanchard O., Dell’Ariccia, G., & Mauro, P. (2010). Rethinking macroeconomic policy (IMF Staff Position Note, 03).
Blinder, A. (2000). Central bank credibility: Why do we care? How do we built it? American Economic Review, 90(5), 1421–1431.
Catao, L. A. V., & Terrones, M. E. (2005). Fiscal deficits and inflation. Journal of Monetary Economics, 52(3), 529–554.
Cecchetti, S., & Krause, S. (2002, July/August). Central bank structure, policy efficiency, and macroeconomic performance: Exploring empirical relationships. Federal Reserve Bank of St. Louis Review, 47–60.
Cecchetti, S. G., Flores-Lagunes, A., & Krause, S. (2006). Has monetary policy become more efficient? Across-country analysis. Economic Journal, 116(511), 408–433.
Corbo, V., Landerretche, O., & Schmidt-Hebbel, K. (2002). Does inflation targeting make a difference? In N. Loayza & R. Soto (Eds.), Inflation targeting: Design, performance, challenges (pp. 221–269). Santiago: Banco Central de Chile.
De Mendonça, H. F., & de Guimarães e Souza, G. J. (2012). Is inflation targeting a good remedy to control inflation? Journal of Development Economics, 98(2), 178–191.
Dornbusch, R., & Fischer, S. (1993). Moderate inflation. World Bank Economic Review, 7(1), 1–44.
Dueker, M., & Fisher, M. A. (1996). Do inflation targets redefine central bank inflation preferences? Results from an indicator model. In J. A. J. Koos Alders, K. G. Kees Koedijk, C. J. M. Clemens Kool, & C. C. M. Carlo Winder (Eds.), Monetary policy in converging Europe (pp. 21–37). Boston: Kluwer/Springer.
Fatás, A., & Mihov, I. (2007). Fiscal discipline, volatility and growth. In G. E. Perry, L. Serven, & R. Suescun (Eds.), Fiscal policy stabilization and growth: Prudence or abstinence? Washington, DC: World Bank.
Fischer, S., Sahay, R., & Vegh, C. A. (2002). Modern hyper- and high inflations. Journal of Economic Literature, 40(3), 837–880.
Ftiti, Z., & Essadi, E. (2013). Relevance of the inflation targeting policy. Journal of Economic and Financial Modeling, 1(1), 62–72.
Gonçalves, C. E. S., & Carvalho, A. (2008). Who chooses to inflation target? Economics Letters, 99(2), 410–413.
Gonçalves, C. E. S., & Salles, J. M. (2008). Inflation targeting in emerging economies: What do the data say? Journal of Development Economics, 85, 312–318.
Kadria, M., & Ben Aissa, S. (2016). Inflation targeting and public deficit in emerging countries: A time varying treatment effect approach. Economic Modeling, 52(1), 108–114.
Leiderman, L., & Svensson, L. E. O. (1995). Inflation targets. Centre for Economic Policy Research (CEPR, London) (Eds.), distributed in North America by the Brookings Institution, Washington, DC.
Lin, S., & Ye, H. (2009). Does inflation targeting make a difference in developing countries? Journal of Development Economics, 89, 118–123.
Lin, S., & Ye, H. (2012). What to Target? Inflation or exchange rate. Southern Economic Journal, 78(4), 1202–1221.
Lucotte, Y. (2012). Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation. Economic Systems, 387(20), 609–628.
Manai, O. D. (2016). Enhanced economic stability and the role of inflation targeting policy: Empirical study on case of developing countries. Asian Economic and Financial Review, 6(6), 352–362.
Mishkin, F. S., & Schmidt-Hebbel, K. (2007). Does inflation targeting make a difference? (NBER Working Paper No. 12876).
Neumann, J. M., & Von Hagen, J. (2002, July/August). Does inflation targeting matter? Federal Reserve Bank of St. Louis Review, 127–148.
Roger, S. (2009). Inflation targeting at 20: Achievements and challenges (IMF Working Paper, WP/09/236).
Samaryna, H., & De Haan, J. (2011). Right on target: Exploring the determinants of inflation targeting adoption (DNB Working Paper 321. De Nederlandsche Bank).
Sims, C. A. (2009). Inflation expectations, uncertainty and monetary policy (BIS Working Papers No. 275, Bank for International Settlements).
Svensson, L. E. O. (1997). Inflation targeting in an open economy: Strict or flexible inflation targeting? (Reserve Bank of New Zealand Discussion Paper Series G97/8, Reserve Bank of New Zealand).
Svensson, L. E. O. (1999). Inflation targeting: Some extensions. Scandinavian Journal of Economics, 101(3), 337–361.
Truman, E. M. (2003). Inflation targeting in the world economy. Washington, DC: Peterson Institute for International Economics.
Vu, U. (2004). Inflation dynamics and monetary policy strategy: Some prospects for the Turkish economy. Journal of Policy Modeling, 26(8–9), 1003–1013.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Appendix
Appendix
Rights and permissions
Copyright information
© 2017 Springer International Publishing AG
About this paper
Cite this paper
Daboussi, O.M., Hedhli, A. (2017). Policy of Inflation Targeting in the Presence of Budget Deficits and Hyperinflation: Difference-in-Differences Estimation. In: Bilgin, M., Danis, H., Demir, E., Can, U. (eds) Regional Studies on Economic Growth, Financial Economics and Management. Eurasian Studies in Business and Economics, vol 7. Springer, Cham. https://doi.org/10.1007/978-3-319-54112-9_6
Download citation
DOI: https://doi.org/10.1007/978-3-319-54112-9_6
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-54111-2
Online ISBN: 978-3-319-54112-9
eBook Packages: Business and ManagementBusiness and Management (R0)