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 argu...

With the fiscal theory of the price level (FTPL), Leeper-Sims-Woodford (LSW) argued that the government budget constraint plays a key role in determining the price level. Indeed, there could even be a dispute vis-à-vis the role of monetary policy in the formation of the price level. Apart from several theoretical criticisms, also addressed in the discussion given in this paper, the attempts to ...

 Governments attempt to achieve the goals of low inflation rate and sustainable economic growth rate. The objective of this study is to analyze the roles of determinants such as the liquidity of money, weighted average of interest (profit) rate on banking deposits, exchange rate and the public debt on inflation and economic growth in Iran, using the quarterly data during the period of 1989-2008...

The chronic government deficit (fiscal deficit) and increase in the price level (inflation) have become major concerns for economists policymakers. While numerous studies examined twin problems of fiscal inflation both developed developing economies, their results are inconclusive due to different estimation techniques, chosen time periods, selection variables, etc. Therefore, we deficit-inflat...

This paper investigates the link between public debt and inflation considering Fiscal Theory of Price Level (FTPL) with data from Paraguay. Unlike other studies, also considers this relationship according to monetary regime. The fiscal policy actions are evaluated in a structural vector autoregressive combined variables interpreted using impulse responses. results highlight importance different...

a r t i c l e i n f o This paper studies the monetary policy trade-off between low inflation and low sovereign risk in the environment where fiscal authorities fail to fully ensure the sustainability of government debt. Building on the Fiscal Theory of Price Level (FTPL) and the Fiscal Theory of Sovereign Risk (FTSR), this paper differs in its baseline assumption about the monetary policy objec...

Charles T. Carlstrom is an economist at the Federal Reserve Bank of Cleveland, and Timothy S. Fuerst is an associate professor of economics at Bowling Green State University and a visiting scholar at the Bank. The authors would like to thank Larry Christiano and Terry Fitzgerald for helpful comments.

Control on regional government budgets is important in a monetary union as lower tiers of government have fewer incentives to consolidate debt. According to the Fiscal Theory of the Price Level; unsustainable non-Ricardian fiscal policies eventually force monetary policy to adjust. Hence, uncoordinated and non-regulated regional fiscal policies would therefore threaten price stability for the m...