NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Is the Fiscal Theory of the Price Level Learnable?

Bennett T. McCallum

NBER Working Paper No. 9961
Issued in September 2003
NBER Program(s):   EFG   ME

This paper presents a prototype model for development of the fiscal theory of the price level.' In this simple setting, the fiscal theory's distinctiveness relies upon adoption of a bubble solution, rather than the rational-expectations fundamentals solution. The paper then shows that the fiscal solution is not adaptively learnable, by agents who estimate coefficients relevant for forecasting on the basis of available data, whereas the orthodox monetarist' solution exists and is learnable. Finally, it is argued that similar results should be expected to apply in models that are more general in various dimensions.

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Document Object Identifier (DOI): 10.3386/w9961

Published: Scottish Journal of Political Economy, Vol. 50, no. 5 (November 2003): 634-649 citation courtesy of

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