In order to assess the effect of fiscal rules in Stage Three of EMU for France and Germany, Bayoumi and Eichengreen's (1992) structural VAR analysis is extended by including the general government financial surplus and conditioning by external variables. This allows a distinction between fiscal and monetary shocks. During the period 1972.1-1995.4, monetary policy has a significant effect on prices in both countries. On the other hand, fiscal shocks, whose effect on the deficit provides a measure of the " structural deficit ", only contribute to a significant part of the dynamics of output in Germany. For that period, they appear to have little effect in France. In addition, fiscal shocks are uncorrelated between the two countries, although it is difficult to conclude that it reflects purely idiosyncratic shocks rather than a different policy-mix.
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Paper provided by Banque de France in its series Documents de Travail with number
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Find related papers by JEL classification: C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System H2 - Public Economics - - Taxation, Subsidies, and Revenue
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Ahmed, Shaghil & Ickes, Barry W. & Ping Wang & Byung Sam Yoo, 1993.
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Ahmed, S. & Ickes, B. & Wang, P. & Yoo, S., 1989.
"International Business Cycles,"
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7-89-4, Pennsylvania State - Department of Economics.
Matthew Shapiro & Mark Watson, 1988.
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