Using structural balance data to test the fiscal theory of the price level: Some international evidence

This paper proposes two extensions to the empirics of the FTPL. First, we apply the methodology initiated by Canzoneri et al. [Canzoneri, M.B., Cumby, R.E., Diba, B.T., 2001. Is the price level determined by the needs of fiscal solvency? American Economic Review 91, 1221-1238] to European data. Second, we use structural balance data, in order to overcome Cochrane's critique. Our conclusion is that for neither country the data support a FTPL interpretation.