The Fiscal Theory of the Price Level: A Narrow Theory for non-Fiat Money Oscar J. Arce∗

Preliminary, comments are welcome I examine the postulates of the Fiscal Theory of the Price Level under a nominal interest rate peg. First, I show that the usual definition of a non-Ricardian policy involves a number of government’s non-credible commitments. Then I investigate some additional conditions that allow the government to make credible fiscal and monetary commitments and which result in a unique equilibrium. A critical nec-essary condition for the credibility of such a fiscalist plan is that the equilibrium level of seigniorage must be non-positive at every single period (i.e. money is not longer a purely fiat asset)