IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

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

  • Jérôme Henry

    ()

    (European Central Bank)

  • Pablo Hernández de Cos

    ()

    (Banco de España)

  • Sandro Momigliano

    ()

    (Banca d’Italia)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/04/Fic/dt0418e.pdf
File Function: First version, October 2004
Download Restriction: no

Paper provided by Banco de España & Working Papers Homepage in its series Working Papers with number 0418.

as
in new window

Length: 38 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:bde:wpaper:0418
Contact details of provider: Web page: http://www.bde.es/

Web page: http://www.bde.es/bde/en/secciones/informes/Publicaciones_se/docs/
Email:


More information through EDIRC

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.:

as in new window
  1. P.G. Fisher & S.K. Tanna & D.S. Turner & K.F. Wallis & J.D. Whitley, 1989. "Comparative Properties of Models of the Uk Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 129(1), pages 69-87, August.
  2. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "Should the European Central Bank and the Federal Reserve be concerned about fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 333-389.
  3. Wendy Edelberg & Martin Eichenbaum & Jonas D.M. Fisher, 1999. "Understanding the Effects of a Shock to Government Purchases," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 166-206, January.
  4. Massimiliano Marcellino, . "Some stylized facts on non-systematic fiscal policy in the Euro area," Working Papers 225, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Mountford, A.W. & Uhlig, H.F.H.V.S., 2002. "What are the Effects of Fiscal Policy Shocks?," Discussion Paper 2002-31, Tilburg University, Center for Economic Research.
  6. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
  7. Stefano Neri, 2001. "Assessing the effects of monetary and fiscal policy," Temi di discussione (Economic working papers) 425, Bank of Italy, Economic Research and International Relations Area.
  8. Giavazzi, Francesco & Pagano, Marco, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," CEPR Discussion Papers 417, C.E.P.R. Discussion Papers.
  9. Lawrence J. Christiano & Terry J. Fitzgerald, 2000. "Understanding the Fiscal Theory of the Price Level," NBER Working Papers 7668, National Bureau of Economic Research, Inc.
  10. Thomas Dalsgaard & Christophe André & Pete Richardson, 2001. "Standard Shocks in the OECD Interlink Model," OECD Economics Department Working Papers 306, OECD Publishing.
  11. Carlo A. Favero, . "How do European monetary and fiscal authorities behave?," Working Papers 214, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  12. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  13. John F. Henry & L. Randall Wray, 1998. "Economic Time," Macroeconomics 9811004, EconWPA.
  14. Philippe Jeanfils, 2000. "A model with explicit expectations for Belgium," Working Paper Research 04, National Bank of Belgium.
  15. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
  16. Gary Fromm & Lawrence R. Klein, 1976. "THE NBER/NSF Model Comparison Seminar: An Analysis of Results," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 1, pages 1-28 National Bureau of Economic Research, Inc.
  17. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
  18. Wallis, Kenneth F., 2004. "Comparing empirical models of the euro economy," Economic Modelling, Elsevier, vol. 21(5), pages 735-758, September.
  19. Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 0168, European Central Bank.
  20. Ángel Estrada & José Luis Fernández & Esther Moral & Ana V. Regil, 2004. "A quarterly macroeconometric model of the Spanish Economy," Working Papers 0413, Banco de España;Working Papers Homepage.
  21. Stanley Fischer & Ratna Sahay & Carlos A. Végh Gramont, 2002. "Modern Hyper- and High Inflations," IMF Working Papers 02/197, International Monetary Fund.
  22. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," NBER Working Papers 5730, National Bureau of Economic Research, Inc.
  23. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco.
  24. Steven A. Symansky & Douglas Laxton & Hamid Faruqee, 1996. "Government Debt, Life-Cycle Income and Liquidity Constrains; Beyond Approximate Ricardian Equivalence," IMF Working Papers 96/140, International Monetary Fund.
  25. Luis Catão & Marco Terrones, 2003. "Fiscal Deficits and Inflation," IMF Working Papers 03/65, International Monetary Fund.
  26. Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Economics Working Papers 015, European Network of Economic Policy Research Institutes.
  27. Peter J. Montiel, 1989. "Empirical Analysis of High-Inflation Episodes in Argentina, Brazil, and Israel," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 527-549, September.
  28. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
  29. repec:sae:niesru:v:129:y::i:1:p:69-87 is not listed on IDEAS
  30. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  31. Willem H. Buiter, 1999. "The Fallacy of the Fiscal Theory of the Price Level," NBER Working Papers 7302, National Bureau of Economic Research, Inc.
  32. King, Robert G. & Plosser, Charles I., 1985. "Money, deficits, and inflation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 147-195, January.
  33. Marco Terrones & Luis Catão, 2001. "Fiscal Deficits and Inflation; A New Look at the Emerging Market Evidence," IMF Working Papers 01/74, International Monetary Fund.
  34. Robert-Paul Berben & Alberto Locarno & Julian Morgan & Javier Vallés, 2005. "Cross-country differences in monetary policy transmission," Working Papers 0502, Banco de España;Working Papers Homepage.
  35. Domenico Marchetti, 2002. "Markups and the Business Cycle: Evidence from Italian Manufacturing Branches," Open Economies Review, Springer, vol. 13(1), pages 87-103, January.
  36. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December.
  37. Dieppe, Alistair & Henry, Jerome, 2004. "The euro area viewed as a single economy: how does it respond to shocks?," Economic Modelling, Elsevier, vol. 21(5), pages 833-875, September.
  38. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
  39. Dirk Niepelt, 2004. "The Fiscal Myth of the Price Level," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 277-300.
  40. Canova, Fabio & Pappa, Evi, 2003. "Price Dispersions in Monetary Unions: The Role of Fiscal Shocks," CEPR Discussion Papers 3746, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:0418. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (María Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de España)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.