2023
DOI: 10.1007/s10663-023-09577-w
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Deficit sustainability and fiscal theory of price level: the case of Italy, 1861–2020

Abstract: We test 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 consider a cointegrated model with multiple structural changes to characterize the sustainability of public finances and the prevalence of monetary or fiscal dominance during … Show more

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Cited by 2 publications
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“…However, dummy variables added to the models reduce the power of the predicted model. Plus, long-term examinations are believed to provide more comprehensive results on FTPL rather than dividing the series into subperiods (Janssen et al, 2002;Congregado et al, 2023). In the empirical literature, nearly all studies examining FTPL have estimated two-and three-variable models.…”
Section: Empirical Literature Reviewmentioning
confidence: 99%
“…However, dummy variables added to the models reduce the power of the predicted model. Plus, long-term examinations are believed to provide more comprehensive results on FTPL rather than dividing the series into subperiods (Janssen et al, 2002;Congregado et al, 2023). In the empirical literature, nearly all studies examining FTPL have estimated two-and three-variable models.…”
Section: Empirical Literature Reviewmentioning
confidence: 99%