Inflation Adjusted Government Budget Deficits and Real Economic Activity. Rejoinder

Giuseppe Tullio sees "three major problems" in our work on the rote of real or inflation-adjusted budget deficits: 1. we use reduced forms; 2. we do not include certain other variables; 3. we use the real high employment surplus rather than the change in that surplus (or perhaps the actual surplus). Tullio proceeds to add variables - particularly the real price of oil, the real wage, various dummies and first differences of the surplus and the (real) monetary base - and two "small countries" (the Netherlands and Denmark). In some instances shortening the sample period, Tullio then claims empirical results which indicate that the inflation adjustment is net "unambiguously" helpful, that the effect of fiscal expansion is strong only for the US and Japan, with crowding out in smaller economies, and the smaller the country the more that foreign fiscal and monetary variables dominate.