The Fiscal Theory of the Price Level and Initial Government Debt

Betty C. Daniel ()

Review of Economic Dynamics, 2007, vol. 10, issue 2, pages 193-206

Abstract: It is widely believed that the Fiscal Theory of the Price Level (FTPL) does not work in an environment in which initial government debt is zero. This paper demonstrates that this view is incorrect when the government issues a set of financial assets restricted to standard nominal debt contracts and money. In particular, it is possible to define a stochastic non-Ricardian fiscal policy for which the set of equilibrium price sequences under non-Ricardian fiscal policy is a proper subset of the set of equilibrium price sequences under Ricardian fiscal policy. (Copyright: Elsevier)

Keywords: Fiscal theory of the price level; Active and passive fiscal policy; Ricardian and non-Ricardian fiscal policy; Monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E6 (search for similar items in EconPapers)
Date: 2007

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