The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Fiscal Theory of the Price Level

  • Marco Bassetto
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2575

Abstract

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. This theory clashes with the monetarist view that states that money supply is the primary determinant of the price level and inflation. Furthermore, many authors have argued that the fiscal rules upon which the FTPL relies are misspecified. We review the sources of disagreement, and highlight aspects upon which some consensus has emerged.

Keywords

Budget deficits Commodity money Debt crises Dynamic competitive equilibrium Exogenous interest rates Fiscal theory of the price level Government budget constraint Inflation Interest rate peg Interest rate rules Intertemporal budget constraint Monetarism Monetary policy Monetization of government debt Money supply rule Multiple equilibria Nominal interest rate Price level Quantity theory of money Real money balances Seigniorage Sunspots Uniqueness of equilibrium Velocity of circulation 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Marco Bassetto
    • 1
  1. 1.