Add to ORKGThis paper studies the issue of price stability in a continuous time optimising general equilibrium model with overlapping generations. It is shown that fiscal policy has effects on nominal variables. Fiscal expansions are inflationary even when the government intertemporal budget constraint is respected and there is no recourse to money fi-nancing. Our results shed new light on the interaction between fiscal policy and nominal prices. JEL Classification: E31, E63