The fragility of the fiscal theory of price determination

Gaetano Bloise

No 2002013, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: The fiscal theory of price determination asserts that the price level is determined by the ratio of nominal public debt to the present value of real primary surpluses. To show its fragility, we describe a cash-in-advance economy with infinitely lived real productive assets. The fiscal theory does not hold since speculative bubbles partly restore the classical indeterminacyresult. What seems arbitrary in the fiscal theory is to treat the initial nominal value of the aggregate portfolio as if it were given exogenously.

Keywords: money; bubbles; indeterminacy; monetary policy; fiscal policy (search for similar items in EconPapers)
JEL-codes: D50 E40 E50 (search for similar items in EconPapers)
Date: 2002-03
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Working Paper: The Fragility of the Fiscal Theory of Price Determination (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2002013

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