Fiscal Theory of the Price Level - Lecture by John H. Cochrane

EUI Economics and Pierre Werner Chair Lecture - Recording of the online event on 13 May 2021.
In this lecture, Professor Cochrane gives a brief overview of the Fiscal Theory of the Price Level, based on the book draft by the same name. The fiscal theory states that money is valued because the government stands ready to soak up money with taxes. It provides an alternative foundation to standard monetarism or new-Keynesian models based on interest rate targets. During this seminar Professor Cochrane develops the basic idea, shows how to apply it, and how to adapt standard models to fiscal theory. The audience is then guided through the data, understanding the roots of inflation, and the zero bound episode.

[@physicalchemistry1]

I enjoyed this talk even though I didn't totally understand it. For a novice like me a more complete definition of the terms would be very helpful. I'm still not quite sure what E (with its various subscripts) represents. Perhaps you could post a simpleminded tutorial on your blog.

[@sueton1797]

E = Expectation or more precisly: E_t = condtional expectation given timepoint t.

[@emmanuelameyaw9735]

Where does inflation comes from? Ans: when people expect government to raise taxes in the future, they spend money today and inflation goes up. 😀😀😀...Is it only me who spends money without thinking about what the government would do with taxes in the future? Hahaha, is my behaviour the norm or most people behave as the agents in John's model? Like most people spend money now for fear of higher taxes tomorrow? I don't think John does this himself...:)

[@ces7777]

you got some confusion in your quote: it is when people expect gov not to be able to rise sufficient taxes to pay the debt. So, what you see today is the value of debt declining, hence you prefer to spend than to save, which rises prices

[@nithin.m2675]

Outstanding Dr. Cochrane. Are the slides of this lecture available?

[@shaerodenaizen4375]

"people would rather go out for one last splurge rather than line their caskets with money" unless of course, they have children. seems to be overlooked by almost every monetary theory.

[@ces7777]

assumes "the world ends tomorrow", hence the splurge. Look at the intertemporal model. What would you do if you expect debt conditions will be worse for your children tomorrow. You prob buy them stuff today.