The fiscal theory of the price level puzzle: A non-Ricardian view

Abstract : The fiscal theory of the price level says that the price level can be made determinate if the government uses fiscal policies such that government liabilities explode unless the price in the first period is at the "right" level. The policy implications are disturbing, as they call for rather adventurous fiscal policies. We show that these disturbing policy implications are specific to the "Ricardian" models that have been used to develop the theory. By moving to non-Ricardian models, we see that price determinacy is consistent with reasonable fiscal policies.
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Submitted on : Tuesday, November 20, 2012 - 8:54:33 AM
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Jean-Pascal Bénassy. The fiscal theory of the price level puzzle: A non-Ricardian view. Macroeconomic Dynamics, Cambridge University Press (CUP), 2008, 12 (s1), pp.31-44. ⟨10.1017/S1365100507070071⟩. ⟨halshs-00754316⟩

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