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Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data

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We estimate a SVAR model of the French economy. The econometric method originates in Blanchard and Perotti [Quarterly Journal of Economics, 2002] but owes also extensively to the fiscal theory of the price level (FTPL) that investigates the interactions between government surplus, debt accumulation and price dynamics. We have the objective, on the one hand, of assessing the effects of fiscal and monetary policy shocks on the economy; and, on the other, of studying the strategic interactions between fiscal and monetary authorities. As a consequence, the theoretical restrictions to identify our model are derived from a FTPL framework. Our estimations reveal so-called Keynesian features of fiscal and monetary shocks; meanwhile, they are consistent with the prediction of the FTPL as regards price dynamics. Although the first part of our findings agrees with most of the recent literature on the subject, the non-rejection of the FTPL is an originality.

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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2005-12.

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Date of creation: 2005
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Handle: RePEc:fce:doctra:0512

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Keywords: Fiscal policy; Monetary policy; Fiscal theory of the price level; Structural VAR; France;

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Cited by:
  1. Jérôme Creel & Francesco Saraceno & Paola Veroni, 2006. "Estimating the impact of public investment in the united Kingdom : Has the Golden Rule of Public Finance Made a Difference ?," Sciences Po publications info:hdl:2441/2681, Sciences Po.
  2. Fan, Jingwen & Minford, Patrick, 2009. "Can the Fiscal Theory of the price level explain UK inflation in the 1970s?," Cardiff Economics Working Papers E2009/26, Cardiff University, Cardiff Business School, Economics Section, revised Mar 2011.

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