Deficit sustainability and the Fiscal Theory of the Price Level: the case of Italy, 1861-2020
Publisher
Universidad de Alcalá. Instituto Universitario de Análisis Económico y Social
Date
2023Bibliographic citation
Documentos de trabajo. IAES-Instituto Universitario de Análisis Económico y Social, Universidad de Alcalá, N. 03, 2023. ISSN 2172-7856
Keywords
Fiscal Theory of the Price Level
Fiscal sustainability
Inflation
Public debt
Explosiveness
Cointegration
Multiple structural breaks
Monetary and fiscal dominance
Description / Notes
47 p.
Document type
info:eu-repo/semantics/workingPaper
Version
info:eu-repo/semantics/publishedVersion
Rights
Attribution-NonCommercial-NoDerivatives 4.0 Internacional
Access rights
info:eu-repo/semantics/openAccess
Abstract
We address a test for sustainability of the Italian government deficit over the period 1861-2020, using the fiscal theory of the price level (FTPL). This approach takes into account monetary and fiscal policy
interactions and assumes that fiscal policy may determine the price level, even if monetary authorities pursue an inflation targeting strategy. We use a cointegrated model with multiple structural changes
to characterize the sustainability of public finances and the prevalence of monetary versus fiscal dominance for sub-periods. We also use the recursive unit root tests for explosiveness to test fiscal sustainability and to detect episodes of potential explosive behavior in Italian public debt.
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deficit_congregado_IAESDT_2023 ... | 661.0Kb |
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