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The Fragility of the Fiscal Theory of Price Determination

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  • Gaetano Bloise

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 in…nitely lived real productive assets. The fiscal theory does not hold since speculative bubbles partly restore the classical indeterminacy result.

Suggested Citation

  • Gaetano Bloise, 2002. "The Fragility of the Fiscal Theory of Price Determination," Documents de recherche 02-07, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  • Handle: RePEc:eve:wpaper:02-07
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    References listed on IDEAS

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    1. Pradeep Dubey & John Geanakoplos, 2000. "Inside and Outside Money, Gains to Trade, and IS-LM," Cowles Foundation Discussion Papers 1257, Cowles Foundation for Research in Economics, Yale University.
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    4. BLOISE, Gaetano & DRÈZE, Jacques & POLEMARCHAKIS, Heracles, 2002. "Money and indeterminacy over an infinite horizon," LIDAM Discussion Papers CORE 2002021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-254, April.
    6. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, vol. 4(3), pages 514-540, June.
    7. BEWLEY, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," LIDAM Reprints CORE 122, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Cited by:

    1. Bloise, Gaetano, 2005. "A remark on the fiscal theory of price determination," Journal of Mathematical Economics, Elsevier, vol. 41(8), pages 1037-1052, December.

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    More about this item

    Keywords

    Money; bubbles; indeterminacy; monetary policy; …scal policy;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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