Citation

Discussion Paper Details

Please find the details for DP5479 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Long-Term Public Debt and the Fiscal Theory of the Price Level

Author(s): Gaetano Bloise and Pietro Reichlin

Publication Date: January 2006

Keyword(s): fiscal policy, fiscal theory of the price level, indeterminacy, monetary policy and public debt

Programme Area(s): International Macroeconomics

Abstract: The fiscal theory of the price level asserts that the price level is determined by the ratio of outstanding public nominal debt into the present value of real primary budget surpluses of the government. We here argue that the logic of the fiscal theory fails when at least part of the public debt takes the form of securities of infinite maturity. Indeed, no equilibrium restriction prevents the occurrence of a speculative bubble on long-term public debt, so as to balance public budget intertemporally in the case of an unexpected increase in the price level. Thus, the price level is indeterminate.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5479

Bibliographic Reference

Bloise, G and Reichlin, P. 2006. 'Long-Term Public Debt and the Fiscal Theory of the Price Level'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5479