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Is the price level in Norway determined by fiscal policy?

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  • Ragna Alstadheim

    ()
    (Norges Bank)

Abstract

The Norwegian public sector has net financial assets. The fiscal theory of price determination applies equally to Norway and economies with net public debt: If primary surpluses evolve independently of nominal debt (or assets), the price level has to adjust to satisfy the intertemporal budget constraint of the public sector. In this ‘non-Ricardian’ regime, monetary policy cannot provide the nominal anchor. In the alternative ‘Ricardian’ regime, surpluses respond to debt, and monetary policy is the nominal anchor. The plausibility of NR regimes is disputed. I use fiscal data and oil prices to argue that the Norwegian regime is Ricardian. The fiscal theory of price

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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2005/5.

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Length: 34 pages
Date of creation: 19 Aug 2005
Date of revision:
Handle: RePEc:bno:worpap:2005_05

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Keywords: Price-level determinacy; fiscal policy; Richardian regime; nominal anchor;

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References

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  1. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," NBER Working Papers 6471, National Bureau of Economic Research, Inc.
  2. Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 2001. "Avoiding Liquidity Traps," CEPR Discussion Papers 2948, C.E.P.R. Discussion Papers.
  3. Woodford, Michael, 1995. "Price-level determinacy without control of a monetary aggregate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 1-46, December.
  4. Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999. "Monetary Policy and Multiple Equilibria," CEPR Discussion Papers 2316, C.E.P.R. Discussion Papers.
  5. John H. Cochrane, 1999. "A Frictionless View of U.S. Inflation," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 323-421 National Bureau of Economic Research, Inc.
  6. Michael Woodford, 2001. "Fiscal Requirements for Price Stability," NBER Working Papers 8072, National Bureau of Economic Research, Inc.
  7. Q. Farooq Akram, 2005. "Efficient consumption of revenues from natural resources – An application to Norwegian petroleum revenues," Working Paper 2005/1, Norges Bank.
  8. Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999. "The Perils of Taylor Rules," CEPR Discussion Papers 2314, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Etienne Farvaque & Hassan Ayoub & Jérôme Creel, 2008. "Détermination du niveau des prix et finances publiques : le cas du Liban, 1965-2005," Sciences Po publications 2008-14, Sciences Po.
  2. repec:spo:wpecon:info:hdl:2441/6154 is not listed on IDEAS
  3. Fan, Jingwen & Minford, Patrick, 2010. "Can the Fiscal Theory of the price level explain UK inflation in the 1970s?," CEPR Discussion Papers 7630, C.E.P.R. Discussion Papers.

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