NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Rashad Ahmed

University of Southern California
Economics Department
3620 South Vermont Ave.
Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of Southern California

NBER Working Papers and Publications

June 2019Inflation and Exchange Rate Targeting Challenges Under Fiscal Dominance
with Joshua Aizenman, Yothin Jinjarak: w25996
Countries have increased significantly their public-sector borrowing since the Global Financial Crisis. In this context, we document several potential fiscal dominance effects during 2000-2017 under Inflation Targeting (IT), and non IT regimes. Higher ratios of public debt-to-GDP are associated with lower policy interest rates in Advanced Economies. In Emerging Market economies under non-IT regimes, composed mostly of exchange rate targeters, the interest rate effect of higher public debt is non-linear, and depends both on the ratio of foreign-currency to total public debt, and on the ratio of hard-currency debt to GDP. For these Emerging Market economies under non-IT regimes, real exchange rate depreciations and international reserves accumulation are significantly associated with higher ...
 
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