Is fiscal policy in the euro area Ricardian?

Nikki Panjer, Leo de Haan, Jan P. A. M. Jacobs*

*Corresponding author for this work

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Abstract

We empirically determine whether a Ricardian or a non-Ricardian regime is more plausible for the euro area, following the research strategy of Canzoneri et al. (Am Econ Rev 91:1221-1238, 2001). A Vector AutoRegressive model for the primary government balance and the government debt is estimated for the period 1980q2-2013q4. Our model uses dummy interaction terms to account for the breaks due to the introduction of the Euro Convergence Criteria (ECC) and the start of the global financial crisis, respectively. No evidence is found in favour of either regime for the pre-ECC period. In the post-ECC period, a Ricardian regime is more plausible. Some evidence points in the direction of a non-Ricardian regime for the period after the start of the financial crisis.

Original languageEnglish
Pages (from-to)411-429
Number of pages19
JournalEmpirica
Volume47
Issue number2
Early online date17-Jan-2019
DOIs
Publication statusPublished - May-2020

Keywords

  • Fiscal policy
  • Euro area
  • Ricardian regime
  • PRICE-LEVEL
  • MONETARY
  • SUSTAINABILITY
  • DEBT

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