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Sunday, August 9, 2020 | History

2 edition of Understanding the fiscal theory of the price level found in the catalog.

Understanding the fiscal theory of the price level

Lawrence J. Christiano

Understanding the fiscal theory of the price level

by Lawrence J. Christiano

  • 89 Want to read
  • 31 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English

    Subjects:
  • Price maintenance.,
  • Fiscal policy.,
  • Monetary policy.

  • Edition Notes

    Other titlesFiscal theory of the price level.
    StatementLawrence J. Christiano, Terry J. Fitzgerald.
    SeriesNBER working paper series -- no. 7668, Working paper series (National Bureau of Economic Research) -- working paper no. 7668.
    ContributionsFitzgerald, Terry J., National Bureau of Economic Research.
    The Physical Object
    Pagination63, [2] p. :
    Number of Pages63
    ID Numbers
    Open LibraryOL22399746M

    This paper argues that the ‘fiscal theory of the price level’ (FTPL) is fallacious. The source of the fallacy is an elementary economic misspecification. The FTPL denies a fundamental property of any model of a market economy, that the budget constraint of any agent, private or public, must be satisfied identically, ie for all admissible. Not so long ago, macroeconomists interested in understanding inflation and its determi- PERCEPTIONS AND MISPERCEPTIONS OF FISCAL INFLATION 2 0 20 40 60 80 0 2 Emerging and developing economies Advanced fiscal theory of the price level.

    ) and Sims (, ). Once the basic theory is laid out, we present a proposition that illustrates the breadth of the class of fiscal policy rules that lead to R regimes. Finally, we discuss some implications of the theory that will be of use in Section II. A. Basic ingredients of the fiscal theory of price determination. Cochrane has also worked on the fiscal theory of the price level, on the debate between permanent and temporary shocks in macroeconomic fluctuations, and the cost of near-rational behavior. Asset Pricing. Cochrane is the author of Asset Pricing, a widely used textbook in .

      And so we can say that there is no "price level" for these services - they are nominal services only. It should be apparent from this equation that government services have an inflationary "bent" irrespective of how those services are financed (taxes, debt, or other). Really, this is the heart of the fiscal theory of the price level. The fiscal theory of the price level (FTPL) describes policy rules such that the price level is determined by government debt and the present and future tax and spending plans, with no direct reference to monetary policy. In understanding the FTPL .


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Understanding the fiscal theory of the price level by Lawrence J. Christiano Download PDF EPUB FB2

The Fiscal Theory of the Price Level is a way of determining the initial price level in a DSGE model that does not have monetary frictions. Given that we generally do not see societies waking up each day and struggling to determine the price level, the.

Understanding the Fiscal Theory of the Price Level Lawrence J. Christiano, Terry J. Fitzgerald. NBER Working Paper No. Issued in April NBER Program(s):Economic Fluctuations and Growth. We review the fiscal theory of the price level.

We place special emphasis on the theory's implications for the feasibility of price by: Charles T. Carlstrom & Timothy S. Fuerst, "The fiscal theory of the price level," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages Narayana R. Kocherlakota & Christopher Phelan, "Explaining the fiscal theory of the price level," Quarterly Review, Federal Reserve Bank of Minneapolis, vol.

23(Fall), pages   New evidence on the fiscal theory of the price level: The s in the UK In recent research we test whether the fiscal theory of the price level applied to this period (Fan and Minford ). To explain inflation we think of the value of government bonds in the market place as that which will be equal in present value to future government.

The authors review the fiscal theory of the price level, with special emphasis on its implications for the feasibility and desirability of price stability. Discover the world's research 2 Understanding the Fiscal Theory of the Price Level by Lawrence J.

Christiano and Terry J. Fitzgerald Lawrence J. Christiano is a professor of economics at Northwestern University. The fiscal theory of the price level challenges this assumption, arguing instead that the fiscal authority's budgetary policy is the primary determinant of the price level.

T o understand why. The fiscal theory of the price level was developed primarily by Eric M. Leeper (), Christopher A. Sims (), and Michael Dean Woodford (,). It has been criticized by Narayana Kocherlakota and Christopher Phelan, [3] Willem Buiter (), [4] Bennett T.

McCallum (,), Oscar Arce, and Dirk Niepelt. Christiano and Fitzgerald: w Understanding the Fiscal Theory of the Price Level: Gordon and Leeper: w The Price Level, the Quantity Theory of Money, and the Fiscal Theory of the Price Level: Canzoneri, Cumby, and Diba: w Is the Price Level Determined by the Needs of Fiscal Solvency?: Buiter: w The Young Person's Guide to Neutrality, Price Level Indeterminacy.

The Fiscal Theory of the Price Level argues that the current price level is driven by the asymptotic trend in expected primary fiscal balances. Since those expected balances are completely unobservable, there is no empirical way of testing the theory.

Functional Finance is closer to the mainstream concept of an output gap driving current. The Fiscal Theory of the Price Level. Jul 1, Macro | Money | Fiscal Theory, Books. Updated August This is draft of of a book on fiscal theory.

August everything posted is completely revised or rewritten relative to the first draft July Read More > Jul 1, Get this from a library. Understanding the fiscal theory of the price level. [Lawrence J Christiano; Terry J Fitzgerald; National Bureau of Economic Research.].

Downloadable. We develop the theory of price-level determination in a range of models using both ad hoc policy rules and jointly optimal monetary and fiscal policies and discuss empirical issues that arise when trying to identify monetary-fiscal regime.

The article concludes with directions in which theoretical and empirical developments may go. The thesis of this paper is that the ‘fiscal theory of the price level’ (FTPL) is fatally flawed.1 An economic misspecification is the origin of the problem. The FTPL confuses two key building blocks of models of a market economy: budget constraints and equilibrium conditions.

Specifically, it denies that the government’s. The fiscal theory becomes a way to maintain the substance of workaday practice with standard new-Keynesian models, while solving in a simple swoop the many holes in its theoretical foundation -- incredible off-equilibrium threats by central bankers, paradoxical policy prescriptions, weird horizon limits and flexible price limits, all of which.

We place special emphasis on the theory's implications for the feasibility of price stability. Suggested Citation: Suggested Citation Christiano, Lawrence J. and Fitzgerald, Terry J., Understanding the Fiscal Theory of the Price Level (April ).

H: /05/27 AM page Explaining the Fiscal Theory of Price Level Determination (Tai-kuang Ho) Mt+1/Ptinstead of beginning-of-period money stockMt/Ptin the utility function. The use of end-of-period money stock in the utility function gives it a cash-in-arrears.

Suggested citation: Christiano, Lawrence J., and Terry J. Fitzgerald. “Understanding the Fiscal Theory of the Price Level,” Federal Reserve Bank of Cleveland.

TY - JOUR. T1 - Understanding the Fiscal Theory of the Price Level. AU - Christiano, Lawrence J. PY - Y1 - M3 - Article. VL - SP - 2. The times call for new thinking, and one promising idea is the fiscal theory of the price level (FTPL).

After two decades of research, the theoretical controversies have been largely resolved. The next step is to understand how to put the theory to work–to apply it to understand historical episodes, data, policy, and policy regimes.

The fiscal theory of the price level (FTPL) describes fiscal and monetary policy rules such that the price level is determined by government debt and fiscal policy alone, with monetary policy playing at best an indirect role.

The fiscal theory of the price level emphasizes the role of fiscal policy and the debt level in determining inflation—traditionally a task assigned to moneta.Search the world's most comprehensive index of full-text books.

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