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Fiscal Policy in the Transition to Monetary Union: a Structural VAR Model

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  • Bruneau, C.
  • De Bandt, O.

Abstract

In order to assess the effect of fiscal rules in Stage Three of EMU for France and Germany, Bayoumi and Eichengreen's (1992) structural VAR analysis is extended by including the general government financial surplus and conditioning by external variables. This allows a distinction between fiscal and monetary shocks. During the period 1972.1-1995.4, monetary policy has a significant effect on prices in both countries. On the other hand, fiscal shocks, whose effect on the deficit provides a measure of the " structural deficit ", only contribute to a significant part of the dynamics of output in Germany. For that period, they appear to have little effect in France. In addition, fiscal shocks are uncorrelated between the two countries, although it is difficult to conclude that it reflects purely idiosyncratic shocks rather than a different policy-mix.

Suggested Citation

  • Bruneau, C. & De Bandt, O., 1999. "Fiscal Policy in the Transition to Monetary Union: a Structural VAR Model," Working papers 60, Banque de France.
  • Handle: RePEc:bfr:banfra:60
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bofinger, Peter & Mayer, Eric, 2004. "The Stability and Growth Pact Time to Rebuild!," W.E.P. - Würzburg Economic Papers 56, University of Würzburg, Chair for Monetary Policy and International Economics.
    2. Resende, Marcelo, 2008. "Efficiency measurement and regulation in US telecommunications: A robustness analysis," International Journal of Production Economics, Elsevier, pages 205-218.
    3. Catherine Bruneau & Olivier De Bandt, 1999. "La modélisation Var "structurel" : application à la politique monétaire en France," Économie et Prévision, Programme National Persée, vol. 137(1), pages 67-94.
    4. Gonzalo Camba-Mendez & Ana Lamo, 2004. "Short-term monitoring of fiscal policy discipline," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 247-265.
    5. Nilsson, Kristian, 2008. "Conceptual Framework for Fiscal Policy," Occasional Papers 16, National Institute of Economic Research.
    6. van Aarle, Bas & Garretsen, Harry & Gobbin, Niko, 2003. "Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis," Journal of Economics and Business, Elsevier, pages 609-638.
    7. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, pages 1-23.
    8. Michael J. Artis, Luca Onorante, 2006. "The Economic Importance of Fiscal Rules," Economics Working Papers ECO2006/14, European University Institute.
    9. Weimann, Marco, 2002. "OCA theory and EMU eastern enlargement: An empirical application," Dresden Discussion Paper Series in Economics 07/02, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    10. Ehrmann, M., 2000. "Firm Size and Monetary Policy Transmission - Evidence from German Business Survey Data," Economics Working Papers eco2000/12, European University Institute.

    More about this item

    Keywords

    Budget deficit ; Ricardian equivalence ; Structural VAR ; EMU;

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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