RT Journal Article
T1 A Modern Approach to Monetary and Fiscal Policy
T2 Un enfoque moderno de la política fiscal y monetaria
A1 Costa Junior, Celso José
A1 García-Cintado, Alejandro
A1 Marques Junior, Karlo
K1 Undergraduate macroeconomics
K1 Fiscal dominance
K1 Fiscal Theory of the Price Level
K1 Fiscal inflation
AB This paper puts forth a systematic approach to teaching fiscal-monetary interactions that follows the view of one of the fathers of the Fiscal Theory of the Price Level (FTPL), Eric Leeper. The main advantage of this setup is its simplicity, which makes it particularly suited for undergraduates and non-specialists. It relies on a two-graph device to show that fiscal and monetary policies always get determined simultaneously and that their effects on the economy always depend on one another’s behavior. It is straightforward to see that in a conventional monetarist world (Regime M), the central bank succeeds in controling inflation so long as the fiscal authority does its job of ensuring that public debt does not grow too much. By contrast, in an alternative fiscal-dominant regime (Regime F), fiscal policy determines the price level (and inflation) in the short run, and the optimal monetary stance is holding the policy rate constant, since if the central bank otherwise tries to fight back fiscally determined inflation, it will worsen fiscal sustainability and increase future inflation.
PB ELSEVIER
YR 2022
FD 2022-03-01
LK https://hdl.handle.net/10433/19887
UL https://hdl.handle.net/10433/19887
LA en
NO International Review of Economics Education 39 (2022) 100232
NO Universidad Pablo de Olavide. Departamento de Economía, Métodos Cuantitativos e Historia Económica
NO Universidade Estadual de Ponta Grossa (Brasil). Departamento de Economia
DS RIO
RD May 8, 2026