The Relevance of the fiscal Theory of the Price Level revisited
AbstractThis 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 1645.
Date of creation: 01 Feb 2007
Date of revision:
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-10 (All new papers)
- NEP-MAC-2007-02-10 (Macroeconomics)
- NEP-PBE-2007-02-10 (Public Economics)
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