The fiscal theory of the price level: a narrow theory for non-fiat money
I examine the postulates of the Fiscal Theory of the Price Level (FTPL) under a nominal interest rate peg. First, I show that the usual definition of a non-Ricardian plan involves a number of government's non-credible policy commitments, thus confuting the interpretation of the FTPL as a policy-based equilibrium selection device. The main novelty of this criticism is that it is based on the same core assumptions maintained by this theory: there is a positive stock of governmentissued assets at the beginning of the history owned by the households, flow of funds constraints must be respected in every contingency, although transversality conditions may be violated at off-equilibrium prices. Then I investigate some additional necessary conditions that allow the government to implement non-Ricardian fiscal plans that result in a unique equilibrium under an interest rate peg. A critical necessary condition for the credibility of such a fiscalist plan is that the equilibrium level of seigniorage must be non-positive. I argue that the fiscalist stock-analogy, under this monetary rule, is only meaningful, precisely, when money enters into the government constraint as a destination of funds, rather than as a source.
References listed on IDEAS
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.:
- Andrew Benito & Ignacio Hernando, 2008. "Labour Demand, Flexible Contracts and Financial Factors: Firm-Level Evidence from Spain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(3), pages 283-301, 06.
- Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2007.
"Similarities and convergence in G-7 cycles,"
Journal of Monetary Economics,
Elsevier, vol. 54(3), pages 850-878, April.
- Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2004. "Similarities and Convergence in G7 Cycles," CEPR Discussion Papers 4534, C.E.P.R. Discussion Papers.
- Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2004. "Similarities and convergence in G-7 cycles," Working Paper Series 0312, European Central Bank.
- Fabio Canova & Matteo Ciccarelli & Eva Ortega, 2003. "Similarities and convergence in G-7 cycles," Economics Working Papers 924, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2004.
- Fabio Canova & Matteo Ciccarelli & Eva Ortega, 2004. "Similarities and convergence in G-7 cycles," Banco de Espa�a Working Papers 0404, Banco de Espa�a.
- Ana Buisán & Juan Carlos Caballero & José Manuel Campa & Noelia Jiménez, 2004.
"La importancia de la histéresis en las exportaciones de manufacturas de los países de la UEM,"
Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 169-222, abril-jun.
- Buisan, Ana & Caballero, Juan C. & Campa, Jose M. & Jimenez, Noelia, 2004. "La importancia de la histéresis en las exportaciones de manufacturas de los países de la UEM," IESE Research Papers D/561, IESE Business School.
- Javier Andres & J. David López-Salido & Edward Nelson, 2004.
"Tobin's imperfect asset substitution in optimizing general equilibrium,"
2004-003, Federal Reserve Bank of St. Louis.
- Andrés, Javier & López-Salido, J David & Nelson, Edward, 2004. "Tobin's Imperfect Asset Substitution in Optimizing General Equilibrium," CEPR Discussion Papers 4336, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:0501. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mar�a Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de Espa�a)
If references are entirely missing, you can add them using this form.