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Fiscal Policy in the Transition to Monetary Union: a Structural VAR Model

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  • Bruneau, C.
  • De Bandt, O.

Abstract

In order to assess the effect of fiscal rules in Stage Three of EMU for France and Germany, Bayoumi and Eichengreen's (1992) structural VAR analysis is extended by including the general government financial surplus and conditioning by external variables. This allows a distinction between fiscal and monetary shocks. During the period 1972.1-1995.4, monetary policy has a significant effect on prices in both countries. On the other hand, fiscal shocks, whose effect on the deficit provides a measure of the " structural deficit ", only contribute to a significant part of the dynamics of output in Germany. For that period, they appear to have little effect in France. In addition, fiscal shocks are uncorrelated between the two countries, although it is difficult to conclude that it reflects purely idiosyncratic shocks rather than a different policy-mix.

Suggested Citation

  • Bruneau, C. & De Bandt, O., 1999. "Fiscal Policy in the Transition to Monetary Union: a Structural VAR Model," Working papers 60, Banque de France.
    • Handle: RePEc:bfr:banfra:60
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    Cited by:

    1. Catherine Bruneau & Olivier De Bandt, 1999. "La modélisation Var "structurel" : application à la politique monétaire en France," Économie et Prévision, Programme National Persée, vol. 137(1), pages 67-94.
    2. De Bandt, Olivier & Mongelli, Francesco Paolo, 2000. "Convergence of fiscal policies in the euro area," Working Paper Series 20, European Central Bank.
    3. De Bandt, Olivier & Mongelli, Francesco Paolo, 2000. "Convergence of fiscal policies in the euro area," Working Paper Series 0020, European Central Bank.
    4. Bofinger, Peter & Mayer, Eric, 2004. "The Stability and Growth Pact Time to Rebuild!," W.E.P. - Würzburg Economic Papers 56, University of Würzburg, Department of Economics.
    5. Michael J. Artis & Luca Onorante, 2007. "The Economic Importance of Fiscal Rules," Palgrave Macmillan Books, in: David Cobham (ed.), The Travails of the Eurozone, chapter 6, pages 123-145, Palgrave Macmillan.
    6. Gonzalo Camba-Mendez & Ana Lamo, 2004. "Short-term monitoring of fiscal policy discipline," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 247-265.
    7. Nilsson, Kristian, 2008. "Conceptual Framework for Fiscal Policy," Occasional Papers 16, National Institute of Economic Research.
    8. van Aarle, Bas & Garretsen, Harry & Gobbin, Niko, 2003. "Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 609-638.
    9. Signe Krogstrup, 2002. "Should We Pay Attention to Indicators of Fiscal Impact on Demand?," IHEID Working Papers 01-2002, Economics Section, The Graduate Institute of International Studies.
    10. Weimann, Marco, 2002. "OCA theory and EMU eastern enlargement: An empirical application," Dresden Discussion Paper Series in Economics 07/02, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.

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    More about this item

    Keywords

    Budget deficit ; Ricardian equivalence ; Structural VAR ; EMU;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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