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Monetary Policy and Exchange Rate Behavior in the Fiscal Theory of the Price Level

Author

Listed:
  • Javier Andrés

    (Universidad de Valencia, Banco de España)

  • Fernando Ballabriga

    (ESADE)

  • Javier Vallés

    (Banco de España)

Abstract

The fiscal theory of the price level has challenged the conventional view that monetary factors drive prices and exchange rates and has also provided a rationale for fiscal restrictions in a monetary union. This paper reviews the main results and compelling criticisms of this theory, analyzing the effects of monetary and fiscal shocks under a fiscal regime. We pay special attention to the determinants of the exchange rate and to the ways to eliminate the exchange rate indeterminacy that arise under interest rate peg.

Suggested Citation

  • Javier Andrés & Fernando Ballabriga & Javier Vallés, 2000. "Monetary Policy and Exchange Rate Behavior in the Fiscal Theory of the Price Level," Working Papers 0004, Banco de España.
    • Handle: RePEc:bde:wpaper:0004
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/00/Fic/dt0004e.pdf
    File Function: First version, 2000
    Download Restriction: no
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    Citations

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    Cited by:

    1. Marí­n, José M., 2002. "Sustainability of public finances and automatic stabilisation under a rule of budgetary discipline," Working Paper Series 193, European Central Bank.
    2. Fan, Jingwen & Minford, Patrick, 2009. "Can the Fiscal Theory of the price level explain UK inflation in the 1970s?," Cardiff Economics Working Papers E2009/26, Cardiff University, Cardiff Business School, Economics Section, revised Mar 2011.

    More about this item

    Keywords

    monetary policy; exchange rate; prices;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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