Testing the Fiscal Theory of Price Level for Türkiye with Fourier-Based Empirical Approaches

Abstract

Inflation is introduced as a monetary phenomenon in orthodox approaches. However, in the fiscal theory of the price level, the policies implemented by the fiscal authority, which determines the present value of intertemporal budget constraint independently of its liabilities, may be determinative of the price level. In this study, the validity of the fiscal theory of the price level for Türkiye was tested via the Fourier-ADL co-integration and Fourier Toda-Yamamoto causality approach. The findings indicate that fiscal policy was effective in determining the price level in the 1975-2021 period.