Fiscal Theory of Price Level and An Analysis of the Recent Testing Methodologies of the Theory (in Turkish)

39 Pages Posted: 27 Oct 2011

See all articles by Ozgur Omer Ersin

Ozgur Omer Ersin

Beykent University - Department of Economics

Date Written: October 25, 2011


In Economic theory, the impact of government debt through wealth effects that enhance the likelihood of real effects in an economy, in which the Ricardian Equivalence fail to hold, is investigated in many studies.Under active fiscal policies as puth foth by Leeper (1991), to equate the intertemporal budget constraint, the increases in price level leads to inflationary periods (Sims, 1991, 1993; Leeper, 1991; Sargent ve Wallace, 1981). As shown by Woodford (1994), in economies, the Quantity Theory of Money, therefore a Money demand function in addition to intertemporal budget constraint equation holds simultaneously, which leads to doubts regarding tests focusing to differentiate Ricardian and Non-Ricardian regimes. In the study, the evaluation methods based on econometric theory and literature are investigated to provide an overlook that follows a path from linear to nonlinear econometric tests. A model will be discussed in accordance with the FTPL theory. Further, the likelihood of increasing failure to evaluate the FTPL theory based on rational expectations with Markov regime switching models will be discussed. STAR type models and their applications to FTPL theory will be discussed.

Note: Downloadable document is in Turkish.

Keywords: Ricardian Equivalence, Fiscal Policy, Nonlinear Econometric Models

JEL Classification: E62, C01

Suggested Citation

Ersin, Ozgur Omer, Fiscal Theory of Price Level and An Analysis of the Recent Testing Methodologies of the Theory (in Turkish) (October 25, 2011). Available at SSRN: or

Ozgur Omer Ersin (Contact Author)

Beykent University - Department of Economics ( email )

Ayazaga Yerleskesi
Istanbul, Istanbul 34396
+902124441997 (Phone)

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