The fragility of the fiscal theory of price determination
(2002)
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- 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 indeterminacy result. What seems arbitrary in the fiscal theory is to treat the initial nominal value of the aggregate portfolio as if it were given exogenously.
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Citations
Bloise, G. (2002). The fragility of the fiscal theory of price determination (CORE Discussion Papers 2002/13). https://hdl.handle.net/2078.5/32293