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The short-term impact of government budgets on prices: evidence from macroeconomic models

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Author Info
Jérôme Henry () (European Central Bank, Kaiserstrasse 29, D-60311, Frankfurt am Main, Germany.)
Pablo Hernández de Cos () (European Central Bank, Kaiserstrasse 29, D-60311, Frankfurt am Main, Germany.)
Sandro Momigliano (Banca d´Italia, Economic Research Department, Via Nazionale 91, 00184 Rome, Italy.)

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Abstract

This paper reviews the existing empirical evidence on the short-term impact on prices of fiscal variables and assesses it against new results from harmonised simulations, conducted with six well-established econometric models used by the ECB and five national central banks (NCBs) of the Eurosystem. The outcome is also compared with results from the European Commission and the OECD models. Overall, a broad consensus appears on the impact on prices of changes in individual government budget items in the euro area. In all cases, changes in government demand and in direct taxes paid by households have a limited impact on prices in the first year while, in contrast, changes in indirect taxes and employers? social security contributions have a relatively large impact. The second year results show that the effects on prices usually take some time to materialise fully; in particular, they often become large for the public consumption shock.

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Paper provided by European Central Bank in its series Working Paper Series with number 396.

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Length: 49 pages
Date of creation: Oct 2004
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Handle: RePEc:ecb:ecbwps:20040396

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Related research
Keywords: Euro area; model simulations; fiscal policy; prices.;

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Find related papers by JEL classification:
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
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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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.:
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    Other versions:
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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. Gábor P. Kiss, 2007. "Pain or Gain? Short-term Budgetary Effects of Surprise Inflation - the Case of Hungary," MNB Occasional Papers 2007/61, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  2. Lorenzo Forni & Libero Monteforte & Luca Sessa, 2007. "The general equilibrium effects of fiscal policy: estimates for the euro area," Temi di discussione (Economic working papers) 652, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
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