Using structural balance data to test the fiscal theory of the price level: an application to France and the USA

Jerome Creel () and Hervé LE BIHAN ()

No 54, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: The fiscal theory of the price level has recently received important attention as an alternative theory of price determination. Empirical tests of the FTPL have been rare, and have undergone forceful criticism by Cochrane (1998) based on ''observational equivalence'' arguments. This papers proposes two extensions to the empirics of the FTPL. First, we apply the methodology initiated by Canzoneri, Cumby and Diba (2001) to French data. Second, we use US and French structural balance data, in order to overcome Cochrane's critique. Our conclusion is that for neither country the data support a FTPL interpretation.

Date: 2002-08-29

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