Testing the Fiscal Theory of the Price Level in Türkiye by Using Structural Balance Data

Kaan Masatçi () and Asuman OKTAYER Buzluca ()
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Kaan Masatçi: Ministry of Treasury and Finance, Istanbul, Senior Expert
Asuman OKTAYER Buzluca: Yildiz Technical Uni., Istanbul, Dept. of Econ.

Journal for Economic Forecasting, 2022, issue 4, 74-95

Abstract: The fiscal theory of the price level (FTPL) emphasizes the distinction between Ricardian and non-Ricardian regimes and claims that if non-Ricardian regime prevails in an economy, the price level will be pinned down by fiscal policy rather than monetary policy. To determine the dominant regime in Türkiye we use quarterly fiscal data (primary balance and government debt) and run bivariate VAR analysis. Additionally, we subdivide primary surplus into its components as structural and cyclical balance data and conduct trivariate VAR analysis. The results strictly show that the non-Ricardian regime prevails in the period 1996-2005. However, for the period 2006-2019, the bivariate results show that the Ricardian regime is dominant, while the trivariate model findings show that the government structurally follows non-Ricardian policies.

Keywords: FTPL; structural budget balance; non-Ricardian fiscal policies; VAR; ECM (search for similar items in EconPapers)
JEL-codes: C22 E31 E62 (search for similar items in EconPapers)
Date: 2022
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