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

Author Info

Listed author(s):
  • Jérôme Henry

    ()

    (European Central Bank)

  • Pablo Hernández de Cos

    ()

    (Banco de España)

  • Sandro Momigliano

    ()

    (Banca d’Italia)

Abstract

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.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/04/Fic/dt0418e.pdf
File Function: First version, October 2004
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Paper provided by Banco de España & Working Papers Homepage in its series Working Papers with number 0418.

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Length: 38 pages
Date of creation: Oct 2004
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/
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Keywords: Euro area; model simulations; fiscal policy; prices;

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Find related papers by JEL classification:
  • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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