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Price Differentials in Monetary Unions: The Role of Fiscal Shocks

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Author Info
Fabio Canova
Evi Pappa

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Abstract

We study the effect of regional expenditure and revenue shocks on price differentials for 47 US states and 9 EU countries. We identify shocks using sign restrictions on the dynamics of expenditures, revenues, deficits and output and construct two estimates for structural price differentials dynamics, one for the average and one for each unit, which optimally weight information contained in the data for all units. On average, expansionary fiscal disturbances produce positive, while distortionary balance budget shocks produce negative price differential responses. The negative price differentials responses in some units is partially explained by spillovers and labour supply effects. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2007.02047.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 117 (2007)
Issue (Month): 520 (04)
Pages: 713-737
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Handle: RePEc:ecj:econjl:v:117:y:2007:i:520:p:713-737

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  16. Evi Pappa, 2005. "New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets," Working Papers 293, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tuomas A. Peltonen & Ricardo M. Sousa & Isabel S. Vansteenkiste, 2009. "Fundamentals, Financial Factors and The Dynamics of Investment in Emerging Markets," NIPE Working Papers 19/2009, NIPE - Universidade do Minho. [Downloadable!]
  2. Fabio Canova & Matteo Ciccarelli, 2007. "Estimating Multi-country VAR models," Discussion Papers 7_2007, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
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  3. Corsetti, Giancarlo & Meier, André & Müller, Gernot J., 2009. "Fiscal Stimulus with spending reversals," CEPR Discussion Papers 7302, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Evi Pappa, 2005. "The Unbearable Tightness of Being in a Monetary Union: Fiscal Restrictions and Regional Stability"," Working Papers 294, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  5. L. Marattin & S. Salotti, 2009. "The Response of Private Consumption to Different Public Spending Categories: VAR Evidence from UK," Working Papers 670, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  6. Ferroni, Filippo, 2009. "Trend agnostic one step estimation of DSGE models," MPRA Paper 14550, University Library of Munich, Germany. [Downloadable!]
  7. Syed A. Basher & Josep Lluis Carrión-i-Silvestre, 2008. "Price level convergence, purchasing power parity and multiple structural breaks: An application to US cities," Working Papers XREAP2008-8, Xarxa de Referència en Economia Aplicada (XREAP), revised Jul 2008. [Downloadable!]
  8. Evi Pappa, 2005. "New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets," Working Papers 293, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  9. Fabio Canova & Evi Pappa, 2004. "Does it Cost to be Virtuous? The Macroeconomic Effects of Fiscal Constraints," Economics Working Papers 926, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2004. [Downloadable!]
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  10. Ignazio Angeloni & Michael Ehrmann, 2007. "Euro Area Inflation Differentials," Topics in Macroeconomics, Berkeley Electronic Press, vol. 7(1), pages 1509-1509. [Downloadable!] (restricted)
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  11. Michael T. Owyang & Sarah Zubairy, 2009. "Who benefits from increased government spending? a state-level analysis," Working Papers 2009-006, Federal Reserve Bank of St. Louis. [Downloadable!]
  12. Matthew Canzoneri, 2007. "Coordination of Monetary and Fiscal Policy in a Monetary Union: Policy Issues & Analytical Models," Money Macro and Finance (MMF) Research Group Conference 2006 165, Money Macro and Finance Research Group. [Downloadable!]
  13. Agustin S. Benetrix, IIIS, Trinity College Dublin. Philip R. Lane, IIIS, Trinity College Dublin, 2009. "Fiscal Shocks and The Sectoral Composition of Output," The Institute for International Integration Studies Discussion Paper Series iiisdp294, IIIS. [Downloadable!]
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