A game-theoretic view of the fiscal theory of the price level

By Marco Bassetto. 2002

142 citations recorded by the source corpus.

The goal of this paper is to probe the validity of the fiscal theory of the price level by modelling explicitly the market structure in which households and the government make their decisions. I describe the economy as a game, and I am thus able to state precisely the consequences of actions that are out of the equilibrium path. I show that there exist government strategies that lead to a version of the fiscal theory, in which the price level is determined by fiscal variables alone. These strategies are however more complex than the simple budgetary rules usually associated with the fiscal theory, and the government budget constraint cannot be merely viewed as an equilibrium condition. Copyright The Econometric Society 2002.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/c5cf5b6588c6d0d374b43c3fdb1b814d3dac55c0

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

Macroeconomic Analysis Without the Rational Expectations Hypothesis (2013, background): “The economy is made up of a large number of identical households, and a large number of firms, each of which is the monopoly producer of a particular differentiated good, with each household owning an equal share of each firm.(2) At any point in time, a household has an infinite-horizon consumption ”
Understanding Inflation as a Joint Monetary-Fiscal Phenomenon (2016, background): “4These accusations appear in Kocherlakota and Phelan (1999), McCallum (2001), Bassetto (2002), Buiter (2002), and Ljungqvist and Sargent (2004).”
Monetary Theory and Policy, 2nd Edition (2003, background): “However, as Bassetto (2002) emphasized, the ability of the government to run a deficit in any period under a non-Ricardian policy regime is contrained by the willingness of the public to lend to the government.”
Monetary/Fiscal Policy Mix and Agents’ Beliefs (2017, background): “…Wallace (1981), who consider the problem in a deterministic environment, and proceeds with Leeper (1991), Sims (1994), and Woodford (1994, 1995, 2001), who focus on the problem of price determinacy, and Bassetto (2002), who studies the game theoretical aspect of the fiscal theory of price level.”