TY - JOUR
T1 - Price differentials in monetary unions: The role of fiscal shocks
AU - Canova, Fabio
AU - Pappa, Evi
PY - 2007/1/1
Y1 - 2007/1/1
N2 - We study the effect of regional expenditure and revenue shocks on price differentials for 47 US states and 9 EU countries. We identify shocks using sign restrictions on the dynamics of expenditures, revenues, deficits and output and construct two estimates for structural price differentials dynamics, one for the average and one for each unit, which optimally weight information contained in the data for all units. On average, expansionary fiscal disturbances produce positive, while distortionary balance budget shocks produce negative price differential responses. The negative price differentials responses in some units is partially explained by spillovers and labour supply effects. © 2007 The Author(s). Journal compilation © Royal Economic Society 2007.
AB - We study the effect of regional expenditure and revenue shocks on price differentials for 47 US states and 9 EU countries. We identify shocks using sign restrictions on the dynamics of expenditures, revenues, deficits and output and construct two estimates for structural price differentials dynamics, one for the average and one for each unit, which optimally weight information contained in the data for all units. On average, expansionary fiscal disturbances produce positive, while distortionary balance budget shocks produce negative price differential responses. The negative price differentials responses in some units is partially explained by spillovers and labour supply effects. © 2007 The Author(s). Journal compilation © Royal Economic Society 2007.
U2 - 10.1111/j.1468-0297.2007.02047.x
DO - 10.1111/j.1468-0297.2007.02047.x
M3 - Article
VL - 117
SP - 713
EP - 737
JO - Economic Journal
JF - Economic Journal
SN - 0013-0133
IS - 520
ER -