The Fiscal Theory of the Price Level in a Non-Ricardian Economy

Rym Aloui and Michel Guillard ()

Annals of Economics and Statistics, 2020, issue 137, 65-82

Abstract: The Fiscal Theory of the Price Level (FTPL) establishes that the general level of prices is determined at equilibrium in order to satisfy the intertemporal government budget constraint. Importantly, in a representative agent framework, this theory requires that the present value of future primary surpluses has to be strictly positive. In a richer framework where the economy is non-Ricardian—an overlapping generations of infinitely-lived agents model—and where the monetary policy is constrained by the Zero Lower Bound (ZLB) on nominal interest rates, we show that the FTPL case arises endogenously, even when exogenous primary surpluses are null. In such a framework, a bubble-like component of government debt induces the price level determinacy by the fiscal policy and affects its equilibrium level.

Keywords: Wealth Effects; Liquidity Trap; Deflation; Zero Lower Bound; Fiscal Theory of the Price Level; Monetary and Fiscal Rules; Public Debt. (search for similar items in EconPapers)
JEL-codes: E52 E63 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.jstor.org/stable/10.15609/annaeconstat2009.137.0065 (text/html)

Related works:
Working Paper: The Fiscal Theory of the Price Level in a Non-Ricardian Economy (2020)
Working Paper: The Fiscal Theory of the Price Level in non-Ricardian Economy (2018)
Working Paper: The Fiscal Theory of the Price Level in non-Ricardian Economy (2018)
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:adr:anecst:y:2020:i:137:p:65-82

DOI: 10.15609/annaeconstat2009.137.0065

Access Statistics for this article

Annals of Economics and Statistics is currently edited by Laurent Linnemer

More articles in Annals of Economics and Statistics from GENES Contact information at EDIRC.
Bibliographic data for series maintained by Secretariat General () and Laurent Linnemer ().