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Testing the Fiscal Theory of the Price Level in Türkiye by Using Structural Balance Data

Author

Listed:
  • Kaan MASATÇI

    (Ministry of Treasury and Finance, Istanbul, Senior Expert)

  • Asuman OKTAYER BUZLUCA

    (Yildiz Technical Uni., Istanbul, Dept. of Econ.)

Abstract

The fiscal theory of the price level (FTPL) emphasizes the distinction between Ricardian and non-Ricardian regimes and claims that if non-Ricardian regime prevails in an economy, the price level will be pinned down by fiscal policy rather than monetary policy. To determine the dominant regime in Türkiye we use quarterly fiscal data (primary balance and government debt) and run bivariate VAR analysis. Additionally, we subdivide primary surplus into its components as structural and cyclical balance data and conduct trivariate VAR analysis. The results strictly show that the non-Ricardian regime prevails in the period 1996-2005. However, for the period 2006-2019, the bivariate results show that the Ricardian regime is dominant, while the trivariate model findings show that the government structurally follows non-Ricardian policies.

Suggested Citation

  • Kaan MASATÇI & Asuman OKTAYER BUZLUCA, 2022. "Testing the Fiscal Theory of the Price Level in Türkiye by Using Structural Balance Data," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 74-95, December.
    • Handle: RePEc:rjr:romjef:v::y:2022:i:4:p:74-95
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    More about this item

    Keywords

    FTPL; structural budget balance; non-Ricardian fiscal policies; VAR; ECM;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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