Fiscal Theory of Price Level

Hounaida Daly and Mounir Smida

MPRA Paper from University Library of Munich, Germany

Abstract: Lack of coordination between the monetary and fiscal authorities will result in inferior overall economic performance. This paper studies the interactions between monetary and fiscal policies and its effect on the economic performance by using al cointegration tests in the case of Euro Area. This paper examines the causal relationship between output gap, public debt, budget deficit, interest rate and inflation rate, and the impact of monetary policy on public debt management, in Euro Area from 1999Q1 to 2013Q4. The evidence supports the idea that the monetary policy is more stabilizing in its influence on the economic activity than the budget policy. The particular stance of monetary policy affects the capacity of the government to finance the budget deficit by changing the cost of debt service and limiting or expanding the available sources of financing. The result does not let hear strong political coordination in Euro Area, a weak policy stance in one policy area burdens the other area and is unsustainable in the long term.

Keywords: Monetary policy; Fiscal policy; Euro Area; Policy mix; Public debt; budget deficit. (search for similar items in EconPapers)
JEL-codes: E5 E58 E6 E62 H3 (search for similar items in EconPapers)
Date: 2014-11-18
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in International Journal of Economics , Commerce and management 11.II(2014): pp. 1-22

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:60142

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