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Fiscal policy and inflation volatility

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Author Info
Philipp C. Rother () (European Central Bank, Kaiserstr. 29, D-60311 Frankfurt am Main, Germany)
Abstract

Among the harmful effects of inflation, the negative consequences of inflation volatility are of particular concern. These include higher risk premia, hedging costs and unforeseen redistribution of wealth. This paper presents panel estimations for a sample of OECD countries which suggest that activist fiscal policies may have an important impact on CPI inflation volatility. Major results are robust for unconditional and conditional inflation volatility, the latter derived from country-specific GARCH models, and across different data frequencies, time periods and econometric methodologies. From a policy perspective, these results point to the possibility of further destabilising effects of discretionary fiscal policies, in addition to their potential to destabilise output.

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Paper provided by European Central Bank in its series Working Paper Series with number 317.

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Length: 38 pages
Date of creation: Mar 2004
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Handle: RePEc:ecb:ecbwps:20040317

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Related research
Keywords: Inflation volatility Fiscal policy

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Find related papers by JEL classification:
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

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Cited by:
(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. Ari Aisen & Francisco José Veiga, 2006. "Political Instability and Inflation Volatility," IMF Working Papers 06/212, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Talpos, Ioan & Dima, Bogdan & Mutascu, Mihai, 2006. "The Fiscal Policy And The Stability Of The Nominal Sector: The Romanian Case," MPRA Paper 5689, University Library of Munich, Germany. [Downloadable!]
  3. Iulia Traistaru-Siedschlag, 2006. "Macroeconomic Differentials and Adjustment in the Euro Area," Papers WP175, Economic and Social Research Institute (ESRI). [Downloadable!]
  4. Szilárd Erhart & Harmen Lehment & Jose L. Vasquez Paz, 2007. "Monetary Policy Committee Size and Inflation Volatility," Kiel Working Papers 1377, Kiel Institute for the World Economy. [Downloadable!]
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