A Monetary-Fiscal Theory of the Price Level

David Miller
Additional contact information
David Miller: Federal Reserve Board

No 613, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Treating nominal government bonds as safe assets leads to a new theory of the price level. Holmstrom (2015) and Gorton (2017) define safe assets as having opaque backing with costly-to-forecast returns. I confirm this definition's empirical implications for government bonds, and analyze the theoretical implications. Government bonds' nominal return is their face value, however their real return is determined by the government's surplus. While consumers hold uninformed beliefs about the surplus, the monetary authority exerts control of the price level. In troubled times, the fiscal authority exerts control as consumers worry about default and pay a high cost to accurately forecast the surplus.

Date: 2019
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_613.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:613

Access Statistics for this paper

More papers in 2019 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().