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Wiley InterScience | |||||||||||||||||
  Scottish Journal of Political EconomyVolume 53 Issue 1, Pages 4 - 27 Published Online: 9 Jan 2006 Journal compilation © 2010 Scottish Economic Society Published on behalf of the Scottish Economic Society
Abstract | References | Full Text: HTML, PDF (Size: 176K) | Related Articles | Citation Tracking  THE PRICE LEVEL, THE QUANTITY THEORY OF MONEY, AND THE FISCAL THEORY OF THE PRICE LEVEL Copyright © Scottish Economic Society 2006 KEYWORDS Monetary Policy • Fiscal Policy • Quantity Theory • Fiscal Theory • Price Level Determination • Money Demand KEYWORDS E31 • E41 • E52 • E62 ABSTRACT
This paper examines price-level determination from the perspective of portfolio choice. Arbitrages among money balances, bonds, and investment goods determine their relative demands. Returns to real balance holdings and after-tax returns to investment goods determine the relative values of nominal and real assets. Because expectations of government policies ultimately determine the expected returns to both nominal and real assets, the price level depends on interactions among current and expected future monetary and fiscal policies. The quantity theory and the fiscal theory emerge as special cases produced by restricting both the margins and the policies considered. Date of receipt of final manuscript: 16 June 2005. | 
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