Price Dispersions in Monetary Unions: The Role of Fiscal Shocks

Fabio Canova and Evi Pappa

No 3746, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the effect of regional expenditure and revenue shocks on price dispersion in a monetary union using annual US state and quarterly EU data. We identify fiscal shocks using sign restrictions on the dynamics of expenditures, revenues, deficits and output. We construct two estimates for structural price dispersion dynamics, one for the average and one for each unit, which optimally weight the information contained in the data for all units. We find that fiscal shocks explain between 10-20% of the variability of price dispersion in the US and between 3-4% in the EU. On average, the predictions of standard theory are confirmed: expansionary fiscal disturbances produce positive price dispersion responses in both areas while distortionary balance budget shocks produce negative price responses. In about one third of the units, negative price dispersion responses to expansionary fiscal shocks are observed. Further, heterogeneities in shapes and peak responses are observed. Explanations for the puzzling features are provided.

Keywords: Fiscal policy; Price dispersions; Bayesian techniques; Supply effects (search for similar items in EconPapers)
JEL-codes: E30 H30 (search for similar items in EconPapers)
Date: 2003-02
New Economics Papers: this item is included in nep-geo, nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
https://cepr.org/publications/DP3746 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:3746

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3746

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().