The Young Person's Guide to Neutrality, Price Level Indeterminacy, Interest Rate Pegs and Fiscal Theories of the Price Level
AbstractThe paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the government adjusts real taxes to satisfy its inter-temporal budget constraint. Second, Woodford’s fiscal theory of the price level, according to which for certain fiscal rules the (initial) price level is independent of the nominal money stock, is invalid. It combines an overdetermined fiscal-financial programme with an unwarranted weakening of the government’s inter-temporal budget constraint, requiring it to hold only in equilibrium, and only for arbitrarily restricted configurations of public spending, taxes and initial debt stocks. Third, there is price level determinacy under an exogenous nominal interest rate rule if the transactions technology has cash-in-advance features. The price level is hysteretic in this case. Finally, it is not possible to draw inferences about the historical process of technological improvements in the transactions technology leading to a cashless economy, by studying the limiting behaviour, as a transactions efficiency index takes on successively higher values, of a sequence of histories, each one of which is indexed for all time by a given level of efficiency.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1799.
Date of creation: Mar 1998
Date of revision:
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Other versions of this item:
- Willem H. Buiter, 1998. "The Young Person's Guide to Neutrality, Price Level Indeterminacy, Interest Rate Pegs, and Fiscal Theories of the Price Level," NBER Working Papers 6396, National Bureau of Economic Research, Inc.
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Michael Woodford, 1995. "Price Level Determinacy Without Control of a Monetary Aggregate," NBER Working Papers 5204, National Bureau of Economic Research, Inc.
- Bennett T. McCallum, 1986.
"Some Issues Concerning Interest Rate Pegging, Price Level Determinacy, and the Real Bills Doctrine,"
NBER Working Papers
1294, National Bureau of Economic Research, Inc.
- McCallum, Bennett T., 1986. "Some issues concerning interest rate pegging, price level determinacy, and the real bills doctrine," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 135-160, January.
- Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc.
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, September.
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