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The Relevance of the fiscal Theory of the Price Level revisited

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Author Info
Thams, Andreas

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Abstract

This paper analyzes empirically the impact of fiscal policy on the price level for Germany and Spain. We investigate, whether the fiscal theory of the price level (FTPL) is able to deliver a reasonable explanation for the different evolutions of the price levels in these two countries during recent years. We apply a Bayesian VAR model with sign restrictions on the impulse responses to assess the relation between surpluses and public debt. The analysis basically evidences non-Ricardian equilibria in Spain, while the opposite is true for Germany. We interpret this as evidence for the inflation differences in these two countries being partially induced by fiscal policy shocks.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1645.

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Date of creation: 01 Feb 2007
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Handle: RePEc:pra:mprapa:1645

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Related research
Keywords: Fiscal theory policy interaction monetary policy public debt price level euro area

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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References listed on IDEAS
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. John H. Cochrane, 1998. "A Frictionless View of U.S. Inflation," NBER Working Papers 6646, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Willem H. Buiter, 2002. "The Fiscal Theory Of The Price Level: A Critique," Economic Journal, Royal Economic Society, vol. 112(481), pages 459-480, July. [Downloadable!] (restricted)
  3. Hess Chung & Troy Davig & Eric M. Leeper, 2007. "Monetary and Fiscal Policy Switching," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 809-842, 06. [Downloadable!] (restricted)
    Other versions:
  4. Norbert Janssen & Charles Nolan & Ryland Thomas, 2004. " Money, Debt and Prices in the UK 1705-1996," CDMA Working Paper Series 0407, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
  5. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
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  6. John H. Cochrane, 2000. "Money as Stock: Price Level Determination with no Money Demand," NBER Working Papers 7498, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Carlo Favero & Tommaso Monacelli, . "Fiscal Policy Rules and Regime (In)Stability: Evidence from the U.S," Working Papers 282, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  8. Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," CEPR Discussion Papers 1772, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  11. Troy Davig & Eric M. Leeper, 2005. "Fluctuating Macro Policies and the Fiscal Theory," NBER Working Papers 11212, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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(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. Thams, Andreas, 2007. "Fiscal policy rules in practice," MPRA Paper 2506, University Library of Munich, Germany. [Downloadable!]
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