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Rene Cabral and Gulcin Ozkan
''Price stability, inflation targeting and public debt policy''
( 2008, Vol. 5 No.32 )
This paper studies the implications of inflation targeting (IT) regimes for public debt accumulation. By utilizing a simple dynamic macroeconomic policymaking model, we show that IT regimes may lead to higher public debt. Our results suggest that in countries where there are inherent distortions in the economy all IT regimes can do is shift the burden of adjustment onto other aspects of macroeconomic policymaking. We therefore argue that, adopting an IT regime without carrying out the required reforms towards eliminating the distortions in the economy is not necessarily an effective device for overall macroeconomic stability.
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
Manuscript Received : Sep 22 2008 Manuscript Accepted : Nov 02 2008

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