Thams, Andreas (2007): The Relevance of the fiscal Theory of the Price Level revisited.
Download (207Kb) | Preview
This paper analyzes empirically the impact of fiscal policy on the price level for Germany and Spain. We investigate, whether the fiscal theory of the price level (FTPL) is able to deliver a reasonable explanation for the different evolutions of the price levels in these two countries during recent years. We apply a Bayesian VAR model with sign restrictions on the impulse responses to assess the relation between surpluses and public debt. The analysis basically evidences non-Ricardian equilibria in Spain, while the opposite is true for Germany. We interpret this as evidence for the inflation differences in these two countries being partially induced by fiscal policy shocks.
|Item Type:||MPRA Paper|
|Institution:||Free University Berlin, Collaborative Research Center 649|
|Original Title:||The Relevance of the fiscal Theory of the Price Level revisited|
|Keywords:||Fiscal theory; policy interaction; monetary policy; public debt; price level; euro area|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
|Depositing User:||Andreas Thams|
|Date Deposited:||03. Feb 2007|
|Last Modified:||11. Feb 2013 21:06|
Afonso, Ant´onio (2002): “Disturbing the Fiscal Theory of the Price Level: Can it Fit the EU-15?,” Working Paper No. 1/2002/DE/CISEP, Department of Economics, Technical University of Lisbon.
Barro, Robert J. (1974): “Are Government Bonds Net Wealth?,” Journal of Political Economy, 82(6), 1095-1117.
Bohn, H. (1998): “The Behaviour of U.S. Public Debt and Deficits,” Quarterly Journal of Economics, 113(3), 949-63. Buiter, Willem H. (1999): “The Fallacy of the Fiscal Theory of the Price Level,” NBER Working Paper No. 7302, National Bureau of Economic Research.
Buiter, Willem H. (2002): “The Fiscal Theory of the Price Level: A Critique,” The Economic Journal 112 (481), 459480.
Canzoneri, Matthew B., Robert E. Cumby and Behzad T. Diba (2001): “Is the Price Level Determined by the Need for Fiscal Solvency?” American Economic Review, 91(5), 1221-38.
Cochrane, John H. (1998): “A Frictionless View of U.S. Inflation,” NBER Working Paper No. 6646, National Bureau of Economic Research.
Cochrane, John H. (2000): “Money as Stock: Price Level Determination with no Money Demand,” NBER Working Paper No. 7498, National Bureau of Economic Research.
Davig, Troy and Eric M. Leeper (2005): “Fluctuating Macro Policies and the Fiscal Theory,” NBER Working Paper No. 11212, National Bureau of Economic Research.
Davig, Troy, Eric M. Leeper and Hess Chung (2006): “Monetary and Fiscal Policy Switching,” Working paper, College of William and Mary and Indiana University.
Dolado, Juan J. and Helmut Lütkepohl: “Making Wald tests work for cointegrated VAR systems,” Econometric Reviews, 15(4), 369-86.
Favero, Carlo A. and Tommaso Monacelli (2005): “Fiscal Policy Rules and Regime (In)stability: Evidence from the U.S.,” Working Paper No. 282, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
Gelman, Andrew, John B. Carlin, Hal S. Stern and Donald B. Rubin (1995): “Bayesian Data Analysis,” Chapman Hall.
Hamilton, James D. (1989): “A new Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle,” Econometrica, 57/2, 357-384.
Janssen, Norbert, Charles Nolan and Ryland Thomas (2002): “Money, Debt and Prices in the UK: 1705-1996,” Economica, 69(275), 461-79.
Leeper, Eric (1991): “Equilibria Under Active and Passive Monetary and Fiscal Policies,” Journal of Monetary Economics 27, 129-47.
Liu, Jun S., Wing H. Wong and Augustine Kong (1994): “Covariance Structure of the Gibbs Sampler with Applications to the Comparison of Estimators and Augmentation Schemes,” Biometrika, 81, 27-40.
Obstfeld, Maurice und Kenneth Rogoff (1996): “Foundations of International Macroeconomics,” MIT Press.
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 4, 381-99.
Sims, Christopher A. (1997): “Fiscal Foundations of Price Stability in Open Economies,” unpublished.
Uhlig, Harald (1994): “What Macroeconomists Should Know About Unit Roots: A Bayesian Perspective,” Econometric Theory, Vol. 10, 645-671.
Uhlig, Harald (1999): “What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure,” CEPR Discussion Papers 2137, Centre for Economic Policy Research.
Woodford, Michael (1994): “Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy,” Economic Theory 4, 345-80.
Woodford, Michael (1995): “Price Level Determinacy without Control of a Monetary Aggregate,” Carnegie-Rochester Conference Series on Public Policy 43, 1-46.
Woodford, Michael (1996): “Control of the Public Debt: A Requirement for Price Stability?,” NBER Working Paper No. 5684, National Bureau of Economic Research.
Woodford, Michael (1998): “Public Debt and the Price Level,” unpublished.
Woodford, Michael (2001): “Fiscal Requirements for Price Stability,” Journal of Money, Credit and Banking 33, 669-728.
Zellner, Arnold (1971): “An Introduction to Bayesian Inference in Econometrics,” Wiley & Sons.