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Cochrane's Defence of the Fiscal Theory of the Price Level: Clarification and Critique

Author

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  • Colin Rogers

    (School of Economics, University of Adelaide)

Abstract

Cochrane (2005) employs a well specified Walrasian general equilibrium model to defend the fiscal theory of the price level against two forms of criticism; that: (1) it implies the violation of Walras's Law and, (2) the completely cashless, frictionless version of the model cannot determine the price level. Of the two criticisms only the second is substantive. This paper explains why no version of Cochrane's model offers a theory of the price level. The model can determine the consumption good value of an asset and a numeraire denominated price level. A numeraire denominated price level is of no theoretical significance.

Suggested Citation

  • Colin Rogers, 2006. "Cochrane's Defence of the Fiscal Theory of the Price Level: Clarification and Critique," School of Economics and Public Policy Working Papers 2006-03, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2006-03
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2006-03.pdf
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    More about this item

    Keywords

    frictionless; cashless; fiscal theory of price level; Walras's law;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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