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Fiscal Theory of the Price Level
  • Marco Bassetto, Federal Reserve Bank of Chicago

The fiscal theory of the price level (FTPL) describes fiscal and monetary policy rules such that the price level is determined by government debt and fiscal policy alone, with monetary policy playing at best an indirect role. This theory clashes with the monetarist view that states that money supply is the primary determinant of the price level and inflation. Furthermore, many authors have argued that the fiscal rules upon which the FTPL relies are misspecified. We review the sources of disagreement, and highlight aspects upon which some consensus has emerged.

Publication Date
October, 2005
Citation Information
Marco Bassetto. "Fiscal Theory of the Price Level," forthcoming in: "The New Palgrave: a Dictionary of Economics," edited by Lawrence Blume and Steven Durlauf