Series: Working Papers. 0533.
Author: Óscar J. Arce.
Topics: Fiscal policy | Household finances | Quantitative methods | Exchange rates | International Economy.
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Abstract
In this paper I analyze the classes of price-paths arising from a non-Ricardian fiscal monetary plan along the lines of the Fiscal Theory of the Price Level (FTPL), under a price invariant nominal money supply rule in a standard Sidrauski-Brock model. I first show that fiscalist speculative deflationary paths are irrational bubbles. Then I argue that a fully autonomous fiscal policy is, in most cases, no implementable, regardless of the time horizon, thus complementing Buiter's (2001, 2002) findings. Finally, I claim that, contrary to the FTPL's arguments, a speculative hyperinflation can never be a necessary result. This latter observation is taken as an evidence against the analogy drawn between the equilibrium value of a firm's stock and money, as recently suggested by some proponents of this new paradigm in monetary economics.