The fiscal theory of the price level and sluggish inflation: how important shall the wealth effect be?

Jerome Creel and Henri Sterdyniak (sterdyniak@sciences-po.fr)

Working Papers from HAL

Abstract: According to the fiscal theory of the price level (FTPL), the interactions between monetary and fiscal policies with governments facing the possibility to act in a non-Ricardian manner make the general price level be fully determined. Here, depending on the expectations framework, we show to what extent the validity of the FTPL also depends on consumers being non-Ricardian. With prices driven by rational expectations, the qualitative results of the strategic interactions between policies do not depend on the Ricardian or non-Ricardian behaviour by the households. With sluggish inflation, the strong version of the FTPL does not bring to a dynamically stable economy. The economy is stable only for a weak version of the FTPL; but, this time, stability conditions depend strongly on the existence and size of the wealth effect. If inflation is sluggish, the FTPL is incompatible with Ricardian consumers.

Date: 2002-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-00972779
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
https://sciencespo.hal.science/hal-00972779/document (application/pdf)

Related works:
Working Paper: The fiscal theory of the price level and sluggish inflation: how important shall the wealth effect be? (2002)
Working Paper: The fiscal theory of the price level and sluggish inflation: how important shall the wealth effect be? (2002)
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:hal:wpaper:hal-00972779

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD (hal@ccsd.cnrs.fr).