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Review of the Fiscal Theory of the Price Level

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  • Hidekazu Niwa

    (Osaka School of International Public Policy,Osaka University)

Abstract

This study reviews the fiscal theory of the price level (FTPL). Our goal is to briefly explain the following three points. First, how is an equilibrium determined in a simple model where prices are perfectly flexible and only one-period government bonds? Second, what is the intuition for equilibrium determination? Third, how does introducing long-term bonds or nominal price rigidities change results in the simplest case?

Suggested Citation

  • Hidekazu Niwa, 2022. "Review of the Fiscal Theory of the Price Level," OSIPP Discussion Paper 22E002, Osaka School of International Public Policy, Osaka University.
    • Handle: RePEc:osp:wpaper:22e002
    as

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    File URL: http://www.osipp.osaka-u.ac.jp/archives/DP/2022/DP2022E002.pdf
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    References listed on IDEAS

    as
    1. Thomas J. Sargent & Neil Wallace, 1984. "Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 15-41, Palgrave Macmillan.
    2. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 381-399.
    3. Michael Woodford, 1998. "Control of the Public Debt: A Requirement for Price Stability?," International Economic Association Series, in: Guillermo Calvo & Mervyn King (ed.), The Debt Burden and its Consequences for Monetary Policy, chapter 5, pages 117-158, Palgrave Macmillan.
    4. 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.
    5. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    6. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fiscal Theory of the Price Level; Fiscal-Monetary Interaction; Government Solvency;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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