The Fiscal Theory of the Price Level

Preface This book I The Fiscal Theory Introduction Simple models A one-period model Intuition of the one-period model Budget constraints and passive policies A basic intertemporal model Dynamic intuition Equilibrium formation Fiscal and monetary policy Expected and unexpected inflation Fiscal policy and unexpected inflation Monetary policy and expected inflation Interest rate targets The fiscal theory of monetary policy Interest rate rules Fiscal policy and debt The central bank and treasury The flat supply curve Fiscal stimulus A bit of generality Long-term debt Debt to GDP and a focus on inflation Risk and discounting Money The zero bound Money, seigniorage, and fiscal theory Linearizations Responses to fiscal and monetary shocks Derivation of the linearized identities Geometric maturity structure linearizations Continuous time Short-term debt Long-term debt Money in continuous time Debt, deficits, discount rates and inflation US surpluses and debt The surplus process – stylized facts Inflation volatility and correlation with deficits Surpluses and debt Financing deficits - revenue or inflation? The mean and risk of government bond returns Stylized fact summary An s-shaped surplus process is reasonable A generalization Surplus process estimates The roots of inflation Aggregate demand shocks Surplus and discount rate shocks Results vary with shock definitions Toward a realistic model The simple new Keynesian model An analytical solution Responses to interest rate and fiscal shocks Matrix solution method Long-term debt Higher or lower inflation? A surplus process A debt target, and active vs. passive fiscal policy Is it reasonable? Thinking about the parameters Policy rules Deficit shocks without policy rules Deficit shocks with policy rules Monetary policy shocks without policy rules Monetary policy shocks with policy rules Shock definition Continuous time An analytic solution Algebra Long-term debt and a policy rule Response functions and price level jumps Model details Sims' model Continuous time model solutions Review and preview Fiscal constraints The present value Laffer curve Discount rates What if r