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The Impact of Fiscal Policy on Prices: Does the Fiscal Theory of Price Level Matter in Latvia?

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  • Olegs Tkacevs

    ()
    (Bank of Latvia)

Abstract

The paper studies the indirect impact of fiscal policy on prices. Exploring VAR in two variables, primary balance ratio to GDP and public debt ratio to GDP, and calculating the impulse response functions to innovations in the former variable, it supposes an evidence of the exogeneity of Latvian general government budget balance. Borrowing from the recently developed Fiscal Theory of Price Level (FTPL) it implies that deterioration of the budget balance may lead to an upward price adjustment needed to assure fiscal solvency.

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Bibliographic Info

Article provided by Baltic International Centre for Economic Policy Studies in its journal Baltic Journal of Economics.

Volume (Year): 6 (2006)
Issue (Month): 1 (July)
Pages: 23-36

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Handle: RePEc:bic:journl:v:6:y:2006:i:1:p:23-36

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Keywords: Fiscal policy; budget balance;

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  1. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2004. "Characterising the Business Cycle for Accession Countries," Working Papers 261, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers 92-187, University of California at Berkeley.
  4. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Peter Backé & Christian Thimann & Olga Arratibel & Oscar Calvo-Gonzalez & Arnaud Mehl & Carolin Nerlich, 2004. "The acceding countries’ strategies towards ERM II and the adoption of the euro - an analytical review," Occasional Paper Series 10, European Central Bank.
  6. Zsolt Darvas & György Szapáry, 2008. "Business Cycle Synchronization in the Enlarged EU," Open Economies Review, Springer, vol. 19(1), pages 1-19, February.
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