Working Paper: NBER ID: w9961
Authors: Bennett T. McCallum
Abstract: 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.
Keywords: No keywords provided
JEL Codes: E5; E6; D8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal policy (E62) | Price level (E30) |
| Fiscal theory predictions (E62) | Unlearnable outcomes for agents (D80) |
| Monetarist theory (E19) | Learnable framework (C51) |