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

26 Pages Posted: 25 Mar 2012

See all articles by Jérôme Creel

Jérôme Creel

Research Department, OFCE (French Observatory of Economic Conditions)

Paola Monperrus-Veroni

Observatoire Francais des Conjonctures Economiques (OFCE)

Francesco Saraceno

Observatoire Francais des Conjonctures Economiques, Paris (OFCE)

Date Written: March 31, 2005

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.

Keywords: Fiscal policy, Monetary policy, Fiscal theory of the price level, Structural VAR, France

JEL Classification: C320, E600, E630, H600

Suggested Citation

Creel, Jérôme and Monperrus-Veroni, Paola and Saraceno, Francesco, Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data (March 31, 2005). Available at SSRN: https://ssrn.com/abstract=2028357 or http://dx.doi.org/10.2139/ssrn.2028357

Jérôme Creel (Contact Author)

Research Department, OFCE (French Observatory of Economic Conditions) ( email )

Paris
France

Paola Monperrus-Veroni

Observatoire Francais des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75007
France

Francesco Saraceno

Observatoire Francais des Conjonctures Economiques, Paris (OFCE) ( email )

69 Quai d'Orsay
75007 Paris
France

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