Fiscal Policy, Interest Rate Shocks and Prices.
Governments have, in the past, sometimes combined a monetary policy involving setting nominal interest rates with a fiscal policy that only weakly targeted its debt stock. This policy regime has recently been examined under the heading of a "fiscal theory of the price level." In this paper...
| Prif Awduron: | , , |
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| Fformat: | Journal article |
| Iaith: | English |
| Cyhoeddwyd: |
2003
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| Crynodeb: | Governments have, in the past, sometimes combined a monetary policy involving setting nominal interest rates with a fiscal policy that only weakly targeted its debt stock. This policy regime has recently been examined under the heading of a "fiscal theory of the price level." In this paper we examine what the consequences would be for the price level of a shock to interest rates in this regime. We show that in a variety of models, that relax the assumptions underlying the "fiscal theory of the price level," a temporary increase in interest rates will raise the price level. This suggests one possible explanation for the "prices puzzle" noted by Sims. |
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