The Fiscal Theory of the Price Level with a Bubble

Citation:

Brunnermeier, Markus K., Sebastian Merkel, and Yuliy Sannikov. “The Fiscal Theory of the Price Level with a Bubble”. Working Papers. Print.

Abstract:

This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital returns depresses the interest rate on government bonds below the economy's growth rate.

Last updated on 05/21/2020