Saturday, December 20, 2014

Brian Romanchuk — Monetary Impotence And The Triumph Of The Fiscal Theory Of The Price Level

There has been an ongoing debate about how monetary policy interacts with the zero bound on interest rates. Paul Krugman has recently posted an article,"The Simple Analytics of Monetary Impotence (Wonkish)", in which he gives a simplified Dynamic Stochastic General Equilibrium (DSGE) model which he says demonstrates something about monetary policy when at the zero bound. When I look at the model, it appears that there are internal contradictions to his suggested solution. Instead, it appears that the model solution is determined by the Fiscal Theory of the Price Level (FTPL). When it comes to DSGE models, it appears that all roads lead to the FTPL….
Bond Economics
Monetary Impotence And The Triumph Of The Fiscal Theory Of The Price Level [wonkish]
Brian Romanchuk


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