Price differentials in monetary unions: The role of fiscal shocks

By Fabio Canova, Evi Pappa. 2007

194 citations recorded by the source corpus.

We study the effect of regional expenditure and revenue shocks on price differentials for 47 US states and 9 EU countries. We identify shocks using sign restrictions on the dynamics of expenditures, revenues, deficits and output and construct two estimates for structural price differentials dynamics, one for the average and one for each unit, which optimally weight information contained in the data for all units. On average, expansionary fiscal disturbances produce positive, while distortionary balance budget shocks produce negative price differential responses. The negative price differentials responses in some units is partially explained by spillovers and labour supply effects.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b49194bc906f2c979f2ba6bb51fe6ed40986067b

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In Economics and Econometrics

Citations in the corpus

From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons (2010, unknown): “54 See Canova and De Nicoló (2002) and Uhlig (2005) for monetary shocks, or Canova and Pappa (2007) and Mountford and Uhlig (2009) for fiscal shocks.”
DISENTANGLING DEMAND AND SUPPLY SHOCKS IN THE CRUDE OIL MARKET: HOW TO CHECK SIGN RESTRICTIONS IN STRUCTURAL VARS (2012, background): “…this approach is seen as an attractive alternative to identification via more classical exclusion restrictions and consequently it has been applied by a number of researchers (e.g., Mountford and Uhlig (2009), Lippi and Nobili (2011), Peersman and Straub (2009), Canova and Pappa (2007)).”
THE IDENTIFICATION OF FISCAL AND MONETARY POLICY IN A STRUCTURAL VAR (2009, methodology): “6 The inclusion of I(0) variables in yt is relatively straightforward by simply recognising that the k I(0) variables are treated in exactly the same way as the n I(1) variables, but with the matrix on the lagged levels e¤ects (yt 1) dened as = n 0 0 Ik : (7)”
Are Institutions Informed About News (2015, background): “The available estimators, which are scarce (see Canova, 2005; Canova and Pappa, 2007; Auerbach and Gorodnichenko, 2011; and more recently Calza, Monacelli, and Stracca, 2013), rely heavily on the specifics of the underlying economic model.”
Panel Vector Autoregressive Models: A Survey (2013, unknown): “One may also be interested in knowing whether in ation dynamics in a monetary union may depend on geographical, political, institutional or cultural characteristics, or on whether scal and monetary interactions are relevant (see Canova and Pappa, 2007).”
What Determines Government Spending Multipliers? (2012, unknown): “In their analysis of U.S. states and EMU member countries, Canova and Pappa (2007) also document that government spending shocks raise the price level relative to the price level in the rest of the union.”
Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions (2014, unknown): “Our work is also related to Canova and Pappa (2007), who study the price effects of fiscal shocks in a monetary union.”
THE EFFECTS OF FISCAL SHOCKS ON EMPLOYMENT AND THE REAL WAGE (2009, unknown): “…endogeneity of fiscal variables, the delays between planning, approval, and implementation of fiscal policies, and the scarceness of reasonable zero-identifying restrictions emphasized, e.g., in Mountford and Uhlig (2002), Canova and Pappa (2007), and Perotti (2004), are to a large extent solved.”