The fiscal theory of the price level and the backing theory of money
AbstractA numerical example of privately issued money is used to illustrate the fiscal theory of the price level, and to show that the fiscal theory is best understood as a subset of the backing theory of money. Government issuance of money or debt is shown to be potentially inflationary only when the government’s net worth is negative, and when the government’s assets do not rise in step with its liabilities. The backing theory is used to examine whether inflation can be avoided by a sufficiently tough central bank, and to criticize the view that fiscal policies affect inflation through their wealth effects.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32502.
Date of creation: Jul 2011
Date of revision:
Money; price level; fiscal; real bills; backing theory;
Find related papers by JEL classification:
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-09 (All new papers)
- NEP-CBA-2011-08-09 (Central Banking)
- NEP-HPE-2011-08-09 (History & Philosophy of Economics)
- NEP-MAC-2011-08-09 (Macroeconomics)
- NEP-MON-2011-08-09 (Monetary Economics)
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.:
- Michael Woodford, 1995.
"Price Level Determinacy Without Control of a Monetary Aggregate,"
NBER Working Papers
5204, National Bureau of Economic Research, Inc.
- 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 F. Sproul, 2003. "There's No Such Thing As Fiat Money," UCLA Economics Working Papers 830, UCLA Department of Economics.
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