The Fiscal Theory of the Price Level in a World of Low Interest Rates
Marco Bassetto and
Wei Cui ()
No WP-2017-25, Working Paper Series from Federal Reserve Bank of Chicago
A central equation for the fiscal theory of the price level (FTPL) is the government budget constraint (or "government valuation equation"), which equates the real value of government debt to the present value of fiscal surpluses. In the past decade, the governments of most developed economies have paid very low interest rates, and there are many other periods in the past in which this has been the case. In this paper, we revisit the implications of the FTPL in a world where the rate of return on government debt may be below the growth rate of the economy, considering different sources for the low returns: dynamic inefficiency, the liquidity premium of government debt, or its favorable risk profile.
Keywords: Debt; fiscal policy; interest rates (search for similar items in EconPapers)
JEL-codes: E43 E62 E63 H6 (search for similar items in EconPapers)
Pages: 45 pages
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
https://www.chicagofed.org/~/media/publications/wo ... 17/wp2017-25-pdf.pdf Full text (application/pdf)
Journal Article: The fiscal theory of the price level in a world of low interest rates (2018)
Working Paper: The Fiscal Theory of the Price Level in a World of Low Interest Rates (2017)
Working Paper: The fiscal theory of the price level in a world of low interest rates (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:wp-2017-25
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by ().