Is the Fiscal Theory of the Price Level Learnable?
Working Paper 9961
DOI 10.3386/w9961
Issue Date
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.
Published Versions
Scottish Journal of Political Economy, Vol. 50, no. 5 (November 2003): 634-649 citation courtesy of