IDEAS home Printed from https://ideas.repec.org/a/cup/macdyn/v7y2003i5p759-782_8.html
   My bibliography  Save this article

Structural Shocks And The Fiscal Theory Of The Price Level In The Sticky Price Model

Author

Listed:
  • KIM, SOYOUNG

Abstract

This paper examines the effects of various structural shocks in the passive monetary-active fiscal regime in which the fiscal theory of the price level is valid, and compares these effects to those suggested by conventional theory (the active monetary-passive fiscal regime), within a framework of the New Keynesian sticky price model. The results suggest that the effects of structural shocks are substantially different in the passive monetary-active fiscal regime. First, a monetary contraction (an increase in the interest-rate) increases the inflation rate persistently, and increases output with lags. Second, a positive government spending shock leads to a consumption rise in the model that predicts a consumption fall based on conventional theory. Third, in response to aggregate-demand and aggregate-supply shocks, a period of inflation above (or below) the steady-state is followed by a period of inflation below (or above) the steady-state. This inflation reversal is also found in the impulse responses of the estimated VAR models during the 1940's and 1950's, which suggests that the passive monetary-active fiscal regime seems to be actually in place during that period.I thank the editor, an associate editor, and two anonymous referees for constructive suggestions, Christopher Sims for discussion on earlier drafts, Minjung Chae for research assistance, and Clayton Reck for editorial help. All remaining errors are mine.

Suggested Citation

  • Kim, Soyoung, 2003. "Structural Shocks And The Fiscal Theory Of The Price Level In The Sticky Price Model," Macroeconomic Dynamics, Cambridge University Press, vol. 7(5), pages 759-782, November.
  • Handle: RePEc:cup:macdyn:v:7:y:2003:i:5:p:759-782_8
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S1365100503020248/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:7:y:2003:i:5:p:759-782_8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/mdy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.