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La théorie budgétaire du niveau des prix : un bilan critique (The Fiscal Theory of the Price Level, a critical assessment) (in French with English summary)

Abstract

This article presents a survey of the Fiscal Theory of the Price Level. According to it, there are two stable regimes of economic policies: one, traditional, where the monetary authorities control inflation and where the fiscal authorities must be concerned with their intertemporal balance. The other, where the monetary policy is passive and where the fiscal authorities can be non-ricardian, i.e. unconcerned with public debt: the price level adjusts the real debt to the future discounted primary surpluses. The FTPL is presented following its historical developments: from its precursors (Sargent, Begg...) to its recent promoters (Leeper, Woodford); from its theoretical critics (Buiter) to its empirical criticisms. The FTPL is neither consistent with the observed behaviour of monetary authorities, nor with the empirical sluggishness of inflation (this latter result is an original one). However, it highlights the need to analyse the strategic interactions between fiscal and monetary policies.

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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2000-03.

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Date of creation: 2000
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Publication status: published in Revue d'Economie Politique, no.6, November-December 2001.
Handle: RePEc:fce:doctra:0003
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Keywords: fiscal theory of the price level; inflation rate; monetary policy; fiscal policy; public debt;

Find related papers by JEL classification:

  • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
  • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
  • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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  1. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  2. Jérôme Creel & Henri Sterdyniak, 1999. "La politique monétaire sans monnaie," Sciences Po publications info:hdl:2441/2961, Sciences Po.
  3. Fabrice Capoen & Henri Sterdyniak & Pierre Villa, 1994. "Indépendance des banques centrales, politiques monétaire et budgétaire : une approche stratégique," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(3), pages 65-102.
  4. Gerlach, Stefan & Schnabel, Gert, 1999. "The Taylor Rule and Interest Rates in the EMU Area," CEPR Discussion Papers 2271, C.E.P.R. Discussion Papers.
  5. Henri Sterdyniak & Jérôme Creel, 1999. "Pour en finir avec la masse monétaire," Revue économique, Presses de Sciences-Po, vol. 0(3), pages 523-533.
  6. 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.
  7. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
  8. John H. Cochrane, 2000. "Money as Stock: Price Level Determination with no Money Demand," NBER Working Papers 7498, National Bureau of Economic Research, Inc.
  9. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  10. Willem Buiter, 2000. "The Fallacy of the Fiscal Theory of the Price Level, Again," CESifo Working Paper Series 303, CESifo Group Munich.
  11. Jeffrey C. Fuhrer, 1995. "The [un]importance of forward-looking behavior in price specifications," Working Papers 95-6, Federal Reserve Bank of Boston.
  12. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," CEPR Discussion Papers 1772, C.E.P.R. Discussion Papers.
  13. Buiter, Willem H., 1999. "The Fallacy of the Fiscal Theory of the Price Level," CEPR Discussion Papers 2205, C.E.P.R. Discussion Papers.
  14. Lawrence J. Christiano & Terry J. Fitzgerald, 2000. "Understanding the fiscal theory of the price level," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-38.
  15. Leith, Campbell & Wren-Lewis, Simon, 2000. "Interactions between Monetary and Fiscal Policy Rules," Economic Journal, Royal Economic Society, vol. 110(462), pages C93-108, March.
  16. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
  17. Rao Aiyagari, S. & Gertler, Mark, 1985. "The backing of government bonds and monetarism," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 19-44, July.
  18. McCallum, Bennett T., 1981. "Price level determinacy with an interest rate policy rule and rational expectations," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 319-329.
  19. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  20. Buiter, Willem H., 1998. "The Young Person's Guide to Neutrality, Price Level Indeterminacy, Interest Rate Pegs and Fiscal Theories of the Price Level," CEPR Discussion Papers 1799, C.E.P.R. Discussion Papers.
  21. Barro, Robert J., 1989. "Interest-rate targeting," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 3-30, January.
  22. Bergin, Paul R., 2000. "Fiscal solvency and price level determination in a monetary union," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 37-53, February.
  23. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
  24. Cushing, Matthew J., 1999. "The indeterminacy of prices under interest rate pegging: The non-Ricardian case," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 131-148, August.
  25. Charles T. Carlstrom & Timothy S. Fuerst, 1999. "Money growth and inflation: does fiscal policy matter?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Apr.
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Cited by:

  1. Jerome Creel & Paola Monperrus-Veroni & Francesco Saraceno, 2005. "Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data," Documents de Travail de l'OFCE 2005-12, Observatoire Francais des Conjonctures Economiques (OFCE).

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