Monetary and fiscal theories of the price level
Subtitle: the irreconcilable differences
By: Bennett T. McCallum and Edward Nelson
Contributors: Nelson, Edward, 1971-
Series: Working paper -- 2006-010A; Working paper (Federal Reserve Bank of St. Louis : Online) -- 2006-010A.
Publisher: Federal Reserve Bank of St. Louis
Published: 2006
Place of publication: St. Louis, Mo.]
Language: eng
Format: [electronic resource] :
Description: "The fiscal theory of the price level (FTPL) has attracted much attention but disagreement remains concerning its defining characteristics.  Some writers have emphasized implications regarding interest-rate pegging and determinacy of RE solutions, whereas others have stressed its capacity to generate equilibria in which price level trajectories mimic those of bonds and differ drastically from those of money supplies.  We argue that the FTPL attained prominence precisely because it appeared to provide a theory whose implications differ greatly from conventional monetary analysis; accordingly we review monetarist writings to identify the primary distinctions.  In addition, we review recent findings concerning learnability "and therefore plausibility" of competing RE equilibria.  These indicate that when FTPL and monetarist equilibria differ, the latter are more plausible in the vast majority of cases.  Under Ricardian assumptions, necessary for clear distinctions, theoretical analysis indicates that fiscal and monetary coordination is not necessary for macroeconomic stability"--Federal Reserve Bank of St. Louis web site.
Notes: Title from PDF file as viewed on 6/26/2006.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.