IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-03597711.html
   My bibliography  Save this paper

Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data

Author

Listed:
  • Jérôme Creel

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Paola Veroni

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Francesco Saraceno

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

We estimate a structural vector autoregressive (SVAR) model of the French economy. The econometric method originates in Blanchard and Perotti [Quarterly Journal of Economics, 2002] but owes also extensively to the fiscal theory of the price level (FTPL) that investigates the interactions between government surplus, debt accumulation and price dynamics. We have the objective, on the one hand, of assessing the effects of fiscal and monetary policy shocks on the economy; and, on the other, of studying the strategic interactions between fiscal and monetary authorities. As a consequence, the theoretical restrictions to identify our model are derived from a FTPL framework. Our estimations reveal so-called Keynesian features of fiscal and monetary shocks; meanwhile, they are consistent with the prediction of the FTPL as regards price dynamics. Although the first part of our findings agree with most of the recent literature on the subject, the non-rejection of the FTPL is an originality.

Suggested Citation

  • Jérôme Creel & Paola Veroni & Francesco Saraceno, 2005. "Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data," Working Papers hal-03597711, HAL.
  • Handle: RePEc:hal:wpaper:hal-03597711
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03597711
    as

    Download full text from publisher

    File URL: https://sciencespo.hal.science/hal-03597711/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. 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.
    3. Jerome Creel & Henri Sterdyniak, 2002. "The fiscal theory of the price level and sluggish inflation: how important shall the wealth effect be?," Documents de Travail de l'OFCE 2002-01, Observatoire Francais des Conjonctures Economiques (OFCE).
    4. Creel, Jerome & Bihan, Herve Le, 2006. "Using structural balance data to test the fiscal theory of the price level: Some international evidence," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 338-360, June.
    5. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    6. repec:hal:spmain:info:hdl:2441/2965 is not listed on IDEAS
    7. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
    8. Thomas J. Sargent & Neil Wallace, 1984. "Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 15-41, Palgrave Macmillan.
    9. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122, National Bureau of Economic Research, Inc.
    10. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    11. Jérôme Creel & Henri Sterdyniak, 1995. "Les déficits publics en Europe : causes, conséquences ou remèdes à la crise ?," Revue de l'OFCE, Programme National Persée, vol. 54(1), pages 57-100.
    12. Dirk Niepelt, 2004. "The Fiscal Myth of the Price Level," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 277-300.
    13. Jordi Galí & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
    14. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 381-399.
    15. Giordani, Paolo, 2004. "An alternative explanation of the price puzzle," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1271-1296, September.
    16. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco.
    17. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
    18. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
    19. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2001. "Is the Price Level Determined by the Needs of Fiscal Solvency?," American Economic Review, American Economic Association, vol. 91(5), pages 1221-1238, December.
    20. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    21. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
    22. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
    23. 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.
    24. repec:hal:spmain:info:hdl:2441/5122 is not listed on IDEAS
    25. Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October.
    26. Leith, Campbell & Wren-Lewis, Simon, 2000. "Interactions between Monetary and Fiscal Policy Rules," Economic Journal, Royal Economic Society, vol. 110(462), pages 93-108, March.
    27. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 111-156, National Bureau of Economic Research, Inc.
    28. Olivier J. Blanchard & Mark W. Watson, 1986. "Are Business Cycles All Alike?," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 123-180, National Bureau of Economic Research, Inc.
    29. repec:hal:spmain:info:hdl:2441/3263 is not listed on IDEAS
    30. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries," European Economic Review, Elsevier, vol. 44(7), pages 1259-1289, June.
    31. Edmund Phelps & Jean-Paul Fitoussi, 1988. "The slump in Europe : reconstructing open economy theory," SciencePo Working papers Main hal-03393283, HAL.
    32. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
    33. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    34. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1, January.
    35. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, vol. 115(1), pages 89-117, March.
    36. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
    37. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
    38. Woodford, Michael, 1995. "Price-level determinacy without control of a monetary aggregate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 1-46, December.
    39. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    40. repec:hal:spmain:info:hdl:2441/3161 is not listed on IDEAS
    41. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    42. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    43. repec:hal:spmain:info:hdl:2441/2972 is not listed on IDEAS
    44. repec:oup:ecpoli:v:18:y:2003:i:37:p:533-572 is not listed on IDEAS
    45. Jerome Creel & Henri Sterdyniak, 2000. "La théorie budgétaire du niveau des prix : un bilan critique (The Fiscal Theory of the Price Level, a critical assessment) (in French with English summary)," Documents de Travail de l'OFCE 2000-03, Observatoire Francais des Conjonctures Economiques (OFCE).
    46. 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.
    47. repec:hal:wpspec:info:hdl:2441/2972 is not listed on IDEAS
    48. repec:dau:papers:123456789/3304 is not listed on IDEAS
    49. Jordi Galí & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe [‘Consumption smoothing through fiscal policy in OECD and EU countries’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 533-572.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jérôme Creel & Paola Monperrus-Veroni & Francesco Saraceno, 2007. "Politique budgétaire discrétionnaire en France. Les effets à court et à long terme," Revue économique, Presses de Sciences-Po, vol. 58(5), pages 1035-1053.
    2. Jérôme Creel & Paola Monperrus-Veroni & Francesco Saraceno, 2006. "Estimating the Impact of Public Investment for the United Kingdom: Has the Golden Rule of Public Finance Made a Difference?," SciencePo Working papers Main hal-03462186, HAL.
    3. Fan, Jingwen & Minford, Patrick, 2009. "Can the Fiscal Theory of the price level explain UK inflation in the 1970s?," Cardiff Economics Working Papers E2009/26, Cardiff University, Cardiff Business School, Economics Section, revised Mar 2011.
    4. Jérôme Creel & Francesco Saraceno & Paola Veroni, 2006. "Estimating the impact of public investment in the united Kingdom : Has the Golden Rule of Public Finance Made a Difference ?," Sciences Po publications info:hdl:2441/2681, Sciences Po.
    5. Jérôme Creel & Paola Veroni & Francesco Saraceno, 2007. "Politique budgétaire discrétionnaire en France," Post-Print hal-03459628, HAL.
    6. Francesco Caprioli & Sandro Momigliano, 2011. "The effects of fiscal shocks with debt-stabilizing budgetary policies in Italy," Temi di discussione (Economic working papers) 839, Bank of Italy, Economic Research and International Relations Area.
    7. repec:hal:wpspec:info:hdl:2441/2681 is not listed on IDEAS
    8. repec:spo:wpecon:info:hdl:2441/2681 is not listed on IDEAS
    9. Sebastian Gechert & Ansgar Rannenberg, 2014. "Are Fiscal Multipliers Regime-Dependent? A Meta Regression Analysis," IMK Working Paper 139-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    10. repec:hal:spmain:info:hdl:2441/2681 is not listed on IDEAS
    11. repec:hal:spmain:info:hdl:2441/3244 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:hal:spmain:info:hdl:2441/1423 is not listed on IDEAS
    2. repec:hal:spmain:info:hdl:2441/2525 is not listed on IDEAS
    3. repec:spo:wpecon:info:hdl:2441/1423 is not listed on IDEAS
    4. repec:hal:wpspec:info:hdl:2441/1423 is not listed on IDEAS
    5. repec:hal:wpspec:info:hdl:2441/2525 is not listed on IDEAS
    6. repec:spo:wpecon:info:hdl:2441/2525 is not listed on IDEAS
    7. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    8. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    9. Jérôme Creel & Paola Veroni & Francesco Saraceno, 2007. "Politique budgétaire discrétionnaire en France," Post-Print hal-03459628, HAL.
    10. Goran Petrevski & Jane Bogoev & Dragan Tevdovski, 2016. "Fiscal and monetary policy effects in three South Eastern European economies," Empirical Economics, Springer, vol. 50(2), pages 415-441, March.
    11. Ant Afonso & Ricardo M. Sousa, 2012. "The macroeconomic effects of fiscal policy," Applied Economics, Taylor & Francis Journals, vol. 44(34), pages 4439-4454, December.
    12. repec:hal:spmain:info:hdl:2441/3244 is not listed on IDEAS
    13. Jérôme Creel & Paola Monperrus-Veroni & Francesco Saraceno, 2007. "Politique budgétaire discrétionnaire en France. Les effets à court et à long terme," Revue économique, Presses de Sciences-Po, vol. 58(5), pages 1035-1053.
    14. António Afonso & Peter Claeys, 2006. "The dynamic behaviour of budget components and output – the cases of France, Germany, Portugal, and Spain," Working Papers Department of Economics 2006/26, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    15. Goran Petrevski & Borce Trenovski & Biljana Tashevska, 2019. "The effectiveness of fiscal and monetary policies in a small open economy – the case of Macedonia," Post-Communist Economies, Taylor & Francis Journals, vol. 31(6), pages 805-821, November.
    16. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, September.
    17. Peter Claeys, 2007. "Estimating the effects of fiscal policy under the budget constraint," IREA Working Papers 200715, University of Barcelona, Research Institute of Applied Economics, revised Jul 2007.
    18. Dragan Tevdovski & Goran Petrevski & Jane Bogoev, 2019. "The effects of macroeconomic policies under fixed exchange rates: A Bayesian VAR analysis," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 32(1), pages 2138-2160, January.
    19. K. Peren Arin & Peter H. Helles & Murat Koyuncu & Otto F. M. Reich, 2016. "Should We Care About The Composition Of Tax-Based Stimulus Packages?," Contemporary Economic Policy, Western Economic Association International, vol. 34(3), pages 430-445, July.
    20. António Afonso & Ricardo Sousa, 2011. "The macroeconomic effects of fiscal policy in Portugal: a Bayesian SVAR analysis," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(1), pages 61-82, April.
    21. Chibi Abderrahim & Chekouri Sidi Mohamed & Benbouziane Mohamed, 2019. "The Impact of Fiscal Policy on Economic Activity over the Business Cycle: An Empirical Investigation in the Case of Algeria," Review of Middle East Economics and Finance, De Gruyter, vol. 15(3), pages 1-23, December.
    22. Reicher, Claire, 2014. "Systematic fiscal policy and macroeconomic performance: A critical overview of the literature," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-37.
    23. Francesco Caprioli & Marzia Romanelli & Pietro Tommasino, 2020. "Discretionary fiscal policy in the Euro area: Past, present and future," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2020(1), pages 55-85.
    24. Malik, Ali K., 2013. "The effects of fiscal spending shocks on the performance of simple monetary policy rules," Economic Modelling, Elsevier, vol. 30(C), pages 643-662.
    25. Tagkalakis, Athanasios, 2008. "The effects of fiscal policy on consumption in recessions and expansions," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1486-1508, June.
    26. Quaghebeur, Ewoud, 2019. "Learning And The Size Of The Government Spending Multiplier," Macroeconomic Dynamics, Cambridge University Press, vol. 23(8), pages 3189-3224, December.
    27. Marek Rusnak & Tomas Havranek & Roman Horvath, 2013. "How to Solve the Price Puzzle? A Meta‐Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 37-70, February.

    More about this item

    Keywords

    Fiscal policy; Monetary policy; Fiscal theory of the price level; Structural VAR; politique fiscale; politique monétaire;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-03597711. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.