The fragility of the fiscal theory of price determination
AbstractThe fiscal theory of price determination asserts that the price level is determined by the ratio of nominal public debt to the present value of real primary surpluses. To show its fragility, we describe a cash-in-advance economy with infinitely lived real productive assets. The fiscal theory does not hold since speculative bubbles partly restore the classical indeterminacyresult. What seems arbitrary in the fiscal theory is to treat the initial nominal value of the aggregate portfolio as if it were given exogenously.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002013.
Date of creation: 00 Mar 2002
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money; bubbles; indeterminacy; monetary policy; ﬁscal policy;
Find related papers by JEL classification:
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
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- Bloise, Gaetano, 2005. "A remark on the fiscal theory of price determination," Journal of Mathematical Economics, Elsevier, vol. 41(8), pages 1037-1052, December.
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