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This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period FY2004/2005:Q1-FY2015/2016:Q4 to assess monetary and fiscal policy interactions and their impact on economic stabilization. Outcomes of monetary and fiscal authority commitment to policy instruments, interest rate, government spending and taxes, are evaluated using Taylor-type and optimal simple rules.

The study extends the stylized micro-founded small open economy New Keynesian DSGE model, proposed by Lubik and Schorfheide (2007), by explicitly introducing fiscal policy behavior into the model (Fragetta and Kirsanova, 2010 and Çebi, 2011). The model is calibrated using quarterly data for Egypt on key macroeconomic variables during FY2004/2005:Q1-FY2015/2016:Q4; and Bayesian methods are used in estimation.

The results show that monetary and fiscal policy instruments in Egypt contribute to economic stability through their effects on inflation, output and debt stock. The monetary policy Taylor rule estimates reveal that the Central Bank of Egypt (CBE) attaches significant importance to anti-inflationary policy and (to a lesser extent) to output targeting but responds weakly to nominal exchange rate variations. CBE decisions are significantly influenced by interest rate smoothing. Egyptian fiscal policy has an important role in output and government debt stabilization. Additionally, the fiscal authority chooses pro-cyclical government spending and counter-cyclical tax policies for output stabilization. Again, past values of the fiscal instruments are influential in the evolution of the future fiscal policy-making process.

A few studies have examined the interaction between monetary and fiscal policy in Egypt within a unified framework. The presented paper integrates the monetary and fiscal policy analysis within a unified dynamic general equilibrium open economy rational expectations framework. Without such a framework, it would not be easy to jointly analyze monetary and fiscal transmission mechanisms for output, inflation and debt. Also, it would be neither possible to contrast the outcome of monetary and fiscal authorities commitment to a simple Taylor instrument rule vis-à-vis optimal policy outcomes nor to assess the behavior of monetary and fiscal agents in macroeconomic stability in context of an active/passive policy decisions framework.

Inflation targeting has increasingly become a popular monetary framework since its first introduction in New Zealand at the beginning of 1990. However, the causality effects of this policy on economic performance, particularly in periods of economic turmoil remain controversial. Thus, this paper re-examines the treatment effect of inflation targeting on two important macro indicators which are inflation rate and output growth with the focus on emerging market economies. The global financial crisis, which is known as the great recession since the last decade, is investigated as an exogenous shock to test for the effectiveness of this popular regime.

The difference-in-difference approach in the fixed-model is employed for this investigation using a balanced panel data of 54 countries with 15 inflation-targeting countries for the period 2002 to 2010.

The examination finds that there is no significant difference in terms of the inflation rate and gross domestic product growth over the whole research period between the treatment and control groups. However, the outcome suggests that emerging economies can control the increase in inflation rate when the economy has to cope with the exogenous uncertainties.

This finding indicates important policy implications for central banks in many countries.

Inflation targeting can help emerging countries to reduce an increase in inflation rate in the crisis period without many trade-offs in the growth of output.

This paper aims to explain real exchange rate fluctuations by means of a model including both standard fundamentals and two alternative measures of inflation expectations for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) over the period January 1993–July 2019.

Both a benchmark linear autoregressive distributed lag (ARDL) model and a nonlinear autoregressive distributed lag (NARDL) specification are considered.

The results suggest that the nonlinear framework is more appropriate to capture the behaviour of real exchange rates given the presence of asymmetries both in the long and short run. In particular, the speed of adjustment towards the purchasing power parity (PPP) implied long-run equilibrium is three times faster in a nonlinear framework, which provides much stronger evidence in support of PPP. Moreover, inflation expectations play an important role, with survey-based ones having a more sizable effect than market-based ones.

The focus on linearities and the estimation of a NARDL model, which is shown to outperform the linear ARDL model both within sample and out of sample, is an important contribution to the existing literature which has rarely applied this type of framework; the choice of an appropriate econometric method also makes the policy implications of the analysis more reliable; in particular, monetary authorities should aim to achieve a high degree of credibility to manage them and thus currency fluctuations effectively; the inflation targeting framework might be especially appropriate for this purpose.

Business confidence is crucial to firm decisions, but it is deeply related to professional forecasters' expectations. Since Brazil is an important inflation targeting country, this paper investigates whether monetary policy credibility and disagreements in inflation and interest rate expectations relate to business confidence in Brazil. The study considers the aggregate business confidence index and the business confidence indexes for 11 industrial sectors in Brazil.

The authors run ordinary least squares and generalized method of moments regressions to assess the direct effects of disagreements in expectation and monetary policy credibility on business confidence. The authors also make use of Wald test of parameter equality to observe whether there are “offsetting effects” of monetary credibility in mitigating the effects of both disagreements in expectations on business confidence. Besides, the authors run quantile regressions to analyze the effect of the main explanatory variables of interest on business confidence in contexts where business confidence is low (pessimistic) or high (optimistic).

Disagreements in inflation expectations reduce business confidence, monetary policy credibility improves business confidence and credibility mitigates the adverse effects of disagreements in expectations on business confidence. The sectors most sensitive to monetary policy credibility are Rubber, Motor Vehicles, Metallurgy, Metal Products and Cellulose. The findings also suggest the effect of disagreement in inflation expectations on business confidence decreases as confidence increases, and the effect of monetary policy credibility on business confidence increases as entrepreneurs are more optimistic.

While there is evidence that monetary policy credibility is beneficial to the economy, there are no studies on the effects of disagreements in inflation and interest rate expectations on business confidence (at the aggregate and sectoral levels). Besides, there are no studies that have investigated whether monetary policy credibility can mitigate the effects of disagreements in inflation and interest rate expectations on business confidence (at the aggregate and sectoral levels). Therefore, there are gaps to be filled in the literature addressing business confidence, monetary policy credibility and disagreements in expectations. These issues are particularly important to inflation targeting developing countries.

Using an innovative threshold estimation technique, this paper provides new evidence on the relationship between finance and inflation with distinct levels of finance.

The sample consisted of 10 high inflation countries using time series data for the period of 1992–2020. These 10 countries recorded the world's highest inflation rates in 2017.

The findings demonstrate that there is a threshold effect on the finance–inflation relationship. Whilst the effects of finance are consistently positive for below and above the threshold models, financial depth above the threshold tends to aggravate the inflation level.

These results disclose that financial depth could be the cause of high inflation in the top 10 countries and thus, is not necessarily welcome as too rapid of a price increase may in turn reverse the prospect of economic growth. Searching and strategizing for the optimal level of financing is crucial in facilitating price stability and economic growth.

The authors believe that the effect of financial depth on inflation is characterised by being desirable to certain extent and undesirable if over-financing is beyond the optimum level. Therefore, in this study, the authors have introduced the threshold modelling as the potential strategy to connect financial depth and inflation.

Despite being a viable source of funds, African sovereign bond markets are relatively underexplored. The empirical literature fails to consider the impact of exclusively macroeconomic factors and the volatile contexts in which African markets operate. The purpose of this paper is to fill the vacuum by proposing a context-sensitive theoretical framework. The study targets, specifically, macroeconomic factors and assesses the extent to which they affect bond market development.

Using panel data on sovereign bond markets from 26 African economies, the study extends previous methodologies used in similar studies by accounting for downside risk in a generalized method of moments (GMM) framework and employing tighter robustness measures.

This study finds that inflation, domestic debt, external debt, GDP at PPP, fiscal balance and exports are important macroeconomic drivers of sovereign bond market development in African emerging economies.

While GMM estimation is beneficial in the presence of endogeneity between the dependent variables that are instrumented with lagged independent variables, it guarantees consistency but, not unbiased estimations.

Market-oriented government funding with well-defined debt management strategies must be implemented to support the development of sovereign bond markets. External debt must be set at a sustainable level, and government should be dedicated to the confirmation of this. Furthermore, inflation rates must be kept low and stable.

If policymakers are to take this study seriously, bond markets may begin to be viable sources of funds for African emerging economies.

This study introduces a methodology for measuring bond market development that considers the systemic volatility in emerging markets and proposes a theoretical framework for African emerging economies. In addition, the authors identify a new macroeconomic determinant of bond market development in the region.

This paper aims to uncover the nexus between budget deficits, money growth and inflation in Vietnam in the period 1995–2012.

The paper uses a structural vector auto-regressive model of five endogenous variables including inflation, real GDP growth, budget deficit growth, money growth and the interest rate.

It is found that inflation rose in response to positive shocks to money growth and that budget deficits had no significant impact on money growth and therefore inflation. This empirical evidence supports the hypothesis that fiscal and monetary policies were relatively independent. Money growth significantly decreased in response to a positive shock to inflation; interest rates had no significant effect on inflation but considerably increased in response to positive inflation shocks. This implies that the monetary base was more effective than interest rates in fighting inflation.

This paper sheds light into understanding the link between budget deficits, money growth and inflation in Vietnam during the high-inflation period 1995–2012. The finding supports the hypothesis that fiscal and monetary policies were relatively independent over the period.

Among the many factors fueling the inflationary tendencies in an economy such as monetary shocks, structural shocks, demand shocks, external shocks and demographic changes, the issue of inflation (INF) has also been found to be related to fiscal policy decisions of the government. The purpose of this study is to investigate the inflationary tendencies in India particularly from the fiscal point of view. The study also examines the influence of other potential determinants such as output growth rate, interest rate, trade-openness (TO) and oil price inflation (OPI).

To examine the dynamic nature of association between fiscal deficit and inflation, the study applies the Toda-Yamamoto (1995) test and Breitung and Candelon (2006) test to investigate the nature of causality in time and frequency domain frameworks. In addition, to scrutinize the possibility of a long-run association, that too from an asymmetric point of view, the study applies a Non-linear Autoregressive Distributed lag model (NARDL) given by Shin et al. (2014). Finally, non-linear cumulative dynamic multipliers are used to trace the traverse between disequilibrium position of short-run and subsequent long-run equilibrium of the system.

The authors found a unidirectional causality from fiscal deficit to inflation in case of time domain analysis and no feedback causality is reported. However, in case of frequency domain design, causality from fiscal deficit to inflation is found at low frequencies only, i.e. no short-run causality is established and hence dynamic nature of the relationship between the two variables is vindicated. Using NARDL model, the results document the existence of an asymmetric long-run direct association between fiscal deficit and inflation. However, an increase in deficit is found to be more inflationary and a decrease affects the inflation with a lower magnitude. The asymmetric impact of fiscal deficit on inflation can be explained through the existence of liquidity constraints, consumption-investment downward inflexibility and the downward price stickiness. Contractionary monetary policy action is found to be more effective than an expansionary one, signifying the asymmetric influence of monetary policy actions on the inflation of India. Similarly, in a supply-constrained economy with downward price rigidity, the authors found an asymmetric impact of output growth and output decline on inflation. As regard to the trade-openness, although an asymmetry is reported, the signs refute the validation of Romer (1993) hypothesis. Finally, the impact of oil price inflation on the inflationary pressures is according to theory but the coefficients are devoid of statistical significance.

These results indicate some important policy recommendations. Fiscal consolidation strategy should be executed in an appreciable manner to achieve the sound fiscal health and lower INF. The disciplined fiscal strategy would also be imperative for an effective monetary policy. Monetary authorities should possess noticeable credibility to manage the macroeconomic system and policy stances should be implemented according to requirements of the economy. Growth in output should be encouraged to have two-fold benefits to the economy – reducing INF on the one hand and fiscal deficits on the other.

The study contributes to the existing literature in the following ways. First, taking note of dynamic nature of the relationship between these two variables, the study examined the deficit INF nexus in a dynamic and asymmetric framework. The novelty of the study is ensured by the very nature of it is the first study in case of India to identify the fiscal INF in an asymmetric configuration. The authors applied a NARDL model, given by Shin et al. (2014) to examine the existence of any cointegrating relationship in an asymmetric paradigm. Second, the nature of causality between fiscal deficit and INF has been examined in a time domain and FD framework to portray precisely the casual interactions between these two variables in the short-run and long run. The study will, therefore, enrich the existing literature along the asymmetric lines.

This paper analyzes variations in the effects of monetary and fiscal shocks on responses of macroeconomic variables, determinacy region, and welfare costs due to changes in trend inflation.

The authors develop the New-Keynesian model, in which the central banks can employ either nominal interest rate (IR rule) or money supply (MS rule) to conduct monetary policies. They also use their capital and recurrent spending budgets to conduct fiscal policies. By using the simulated method of moment (SMM) for parameter estimation, the authors characterize Vietnam's economy during 1996Q1–2015Q1.

The results report that consequences of monetary policy and fiscal policy shocks become more serious if there is a rise in trend inflation. Furthermore, the money supply might not be an effective instrument, and using the government budget for recurrent spending produces severe consequences in the high-trend inflation economy.

This paper's findings are critical for economists and monetary and fiscal authorities in effectively designing both the monetary and fiscal policies in confronting the shift in the inflation targets.

This is the first paper that examines the effects of trend inflation on the monetary and fiscal policy implementation in the case of Vietnam.

This paper analyzes the effects of the monetary stance on the media's favorable (or otherwise) attitude to the State Bank of Vietnam's (SBV) monetary policy using monthly data from 2011 to 2021. Monetary stance is a multivariate index based on the growth rates of money supply and domestic credit. A large set of articles published in five Vietnam daily newspapers are utilized to construct a view of the media's favorableness to the monetary policy.

This paper uses hand-collected data from 211 articles published in five newspapers from December 2011 to September 2021 in order to examine the relationship between the monetary stance and the media's favorableness to monetary policy. Following the studies of He and Pauwels (2008) and Xiong (2012), the authors constructed a multivariate stance index to capture most of the important changes in the SBV's monetary policy stance.

The study's main findings are that a change in monetary stance from easing to neutral/tightening, or from neutral to tightening, is greatly appreciated by the media. The study's findings are robust, especially in terms of alternative measures of the media's favorableness and monetary policy variables.

These findings have important policy implications for implementing SBV's monetary policy.

The main contribution of this paper is that the authors are the first to study the nexus of multivariate monetary stance and the media's favorableness to a central bank's non-inflation-targeting mandate. In particular, the study’s findings confirm that the SBV's multivariate monetary stance affects the media's favorableness, whereas the effect of inflation is statistically insignificant.