Price Level Determinacy Without Control of a Monetary Aggregate

Michael Woodford

No 5204, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: It is shown that the price level remains determinate even in the case of two kinds of radical money supply endogeneity -- an interest rate peg by the central bank, and a 'free banking' regime -- that are commonly supposed to imply loss of control of the price level. Price level determination under such regimes can be understood in terms of a 'fiscal theory of the price level,' according to which the equilibrium price level is that level that makes the real value of nominally denominated government liabilities equal to the present value of expected future government budget surpluses. The application of the fiscal theory of the price level to exogenous-money regimes is sketched as well.

Date: 1995-08
Note: EFG ME
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Published as Carnegie-Rochester Conference Series on Public Policy, Vol. 43, (December 1995): pp. 1-46.

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Journal Article: Price-level determinacy without control of a monetary aggregate (1995)
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