Is the Fiscal Theory of the Price Level Learnable? / Bennett T. McCallum.

By:

McCallum, Bennett T

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w9961.Publication details: Cambridge, Mass. National Bureau of Economic Research 2003.Description: 1 online resource: illustrations (black and white)Subject(s):

E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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Abstract: This paper presents a prototype model for development of the fiscal theory of the price level.' In this simple setting, the fiscal theory's distinctiveness relies upon adoption of a bubble solution, rather than the rational-expectations fundamentals solution. The paper then shows that the fiscal solution is not adaptively learnable, by agents who estimate coefficients relevant for forecasting on the basis of available data, whereas the orthodox monetarist' solution exists and is learnable. Finally, it is argued that similar results should be expected to apply in models that are more general in various dimensions.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
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September 2003.

This paper presents a prototype model for development of the fiscal theory of the price level.' In this simple setting, the fiscal theory's distinctiveness relies upon adoption of a bubble solution, rather than the rational-expectations fundamentals solution. The paper then shows that the fiscal solution is not adaptively learnable, by agents who estimate coefficients relevant for forecasting on the basis of available data, whereas the orthodox monetarist' solution exists and is learnable. Finally, it is argued that similar results should be expected to apply in models that are more general in various dimensions.