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Is the Fiscal Theory of the Price Level Learnable?

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  • Bennett T. McCallum

Abstract

This paper presents a prototype model for development of the fiscal theory of the price level.' In this simple setting, the fiscal theory's distinctiveness relies upon adoption of a bubble solution, rather than the rational-expectations fundamentals solution. The paper then shows that the fiscal solution is not adaptively learnable, by agents who estimate coefficients relevant for forecasting on the basis of available data, whereas the orthodox monetarist' solution exists and is learnable. Finally, it is argued that similar results should be expected to apply in models that are more general in various dimensions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9961.

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Date of creation: Sep 2003
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Publication status: published as Scottish Journal of Political Economy, Vol. 50, no. 5 (November 2003): 634-649
Handle: RePEc:nbr:nberwo:9961

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