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Title:Fiscal policy effects in the European Union PDF Logo
Authors:Thams, Andreas
Issue Date:2006
Series/Report no.:SFB 649 discussion paper 2006,016
Abstract:This paper analyzes empirically the impact of fiscal policy on the price level for the cases of Germany and Spain. We investigate whether the fiscal theory of the price level (FTPL) is able to deliver a reasonable explanation for the different performances of the price level in these two countries during recent years. We apply two different approaches. The first is a Bayesian VAR model using sign restrictions to assess the relation between surpluses and public debt. Afterwards, we use a Bayesian regime-switching model to uncover changes in monetary and fiscal policy behavior. The analysis basically shows that in each of the two countries fiscal shocks have a significant impact on the price level. Nonetheless, the FTPL does not deliver a reasonable explanation for the differences in the pattern of inflation between the two countries.
Subjects:Fiscal theory
policy interaction
monetary policy
public debt
price level
Euro area
JEL:E30
E31
E42
E62
E63
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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