[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-439101-105":3,"detail-sidebar-cat-0-en-105":79,"doc-detail-439101-en":129},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":72,"head_meta":74,"extra_data":76,"updated_unix":78},105,"en","price-stability-is-a-tough-centralbank-enough","Price Stability - Is a Tough CentralBank Enough?","","The commentary explains how monetary policy and central bank independence interact with fiscal policy to determine price stability. It contrasts conventional wisdom—linking the price level to money supply versus demand and arguing a tough central bank suffices—with the fiscal theory of the price level, which requires an appropriate fiscal policy regardless of central bank toughness. It analyzes how government debt repayment via future surpluses shapes inflation dynamics in the U.S.",{"@graph":14,"@context":71},[15,34,54],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & Report",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/price-stability-is-a-tough-centralbank-enough/439101/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":48,"encodingFormat":47,"isAccessibleForFree":49,"interactionStatistic":50},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/price-stability-is-a-tough-centralbank-enough/439101.png","ImageObject",300,407,{"name":42,"@type":43},"Rowan","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-09-29",true,{"@type":51,"interactionType":52,"userInteractionCount":4},"InteractionCounter",{"@type":53},"ViewAction",{"@type":55,"mainEntity":56},"FAQPage",[57,63,67],{"name":58,"@type":59,"acceptedAnswer":60},"What is the conventional view of achieving price stability?","Question",{"text":61,"@type":62},"Conventional wisdom holds that the price level depends on the quantity of money supplied relative to money demanded. If money supply grows faster than demand, inflation follows, and achieving price stability requires a tough, independent central bank committed to it.","Answer",{"name":64,"@type":59,"acceptedAnswer":65},"What does the fiscal theory of the price level add to the conventional view?",{"text":66,"@type":62},"The fiscal theory view argues that a tough, independent central bank alone is not enough. An appropriate fiscal policy is also required, because conditions for repayment of current government debt via future surpluses determine how the price level evolves.",{"name":68,"@type":59,"acceptedAnswer":69},"How does the “game of chicken” relate to inflation outcomes?",{"text":70,"@type":62},"The theory describes a tension where fiscal and monetary authorities control different sources of surplus needed to pay off debt. If the fiscal authority reduces surpluses, the monetary authority must increase seignorage (raising money growth), which leads to higher inflation at some point.","https://schema.org",{"og:url":32,"og:type":73,"og:title":10,"og:site_name":45,"og:description":12},"article",{"robots":75,"canonical":32},"index,follow",{"doc_id":77,"site_id":7},439101,1790687464,{"code":4,"msg":80,"data":81},"success",[82,86,90,94,99,104,109,113,118,121,125],{"id":22,"doc_module":4,"doc_module_name":25,"category_name":83,"show_sort_weight":84,"slug":85},"Story & 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monetary policy.laidout in the Federal Reserve Act,is to\"promote effectively the goals of maxi-mum employment,stable prices,andmoderate long-term interest rates.\"Many believe the Federal Reserve's pri-mary focus should be achieving stableprices,arguing that price stability isessential to attaining the companiongoals of maximum employment andmoderate interest rates.  \nHow can price stability be achieved?Conventional wisdom offers a simpleand straightforward answer:Make surethere is a tough,independent central bankwith an unwavering commitment to pricestability.According to this view,a toughcentral bank is all that is required.  \nRecently,however,an alternative viewhas challenged the conventional wis-dom.In this new view.a tough,indepen-dent centra bank is not enough to ensureprice stability:an appropriate fiscal pol-icy is also required,no matter how toughthe central bank.Because fiscal policyplays such a prominent role in the theoryunderlying this view,it has been calledthe fiscal theory of the price level.Thuswe refer to it throughout this Commen-tary as the fiscal theory view.  \nWhether one accepts the conventionalor the fiscal theory view has significantimplications for the way central banksshould conduct business.The traditionalview has fostered the notion that centralbanks with a mandate to foster price sta-bility should stay away from the fiscalauthorities,to reduce their likelihoodof being pressured into making poordecisions.  \n# Price Stability:Is a Tough CentralBank Enough?\n\nThe fiscal theory view implies that cen-tral bankers must do more than just makesure their own house is in order:Theymust also ensure the fiscal authorityadopts an appropriate policy.If this viewis correct,then governments that seek toachieve price stability by focusing exclu-sively onestablishing tough centralbanks may find price stability impossibleto achieve—unless an appropriate fiscalpolicy is.fortuitously,in place.  \nThis Economic Commentury describesthe conventional and the fiscal theoryviews of price stability.discusses whytheir conclusions are so different,andexamines U.S.inflation behavior in lightof the two views.²  \n## ■ The Conventional Wisdom³\n\nThe conventional wisdom asserts thatthe price level is determined by thequantity of money supplied relative tothe quantity of money demanded.If sup-ply grows faster than demand,the pricelevel must rise—that is,inflation results.Furthermore,inflation can occur onlywhen the monetary authority expandsthe money supply too rapidly.But thereis more to the story.  \n## The Role of Fiscal Policy\n\nAt the heart of both the conventional andthe fiscal theory views lies the simpleobservation that today's governmentdebt must be paid off with future gov-ernment surpluses.Specifically,the cur-rent value of the government debt mustequal the expected present value offuture government surpluses.As we willdiscuss,the views differ as to how thiscondition gets satisfied.  \nAugust 1.2000  \nHow can price stability be achieved?Conventional wisdom says that atough,independent central bank is allthat is necessary.However,a newview—known as the fiscal theory ofthe price level—argues that an appro-priate fiscal policy is also required,nomatter how tough the central bankmay be.Whether one accepts the con-ventional or the fiscal theory view hassignificant implications for the waycentral banks should do business.  \nUnder the conventional view,the currentreal (that is,inflation-adjusted)value ofthe govemment debt—the nominalvalue divided by the price level—is afixed quantity,because the nominal debtis given and the price level is determinedin the money market.The governmenthas two ways of generating surpluses topay off the debt.It can collect more taxrevenues than it spends—referred to asfiscal surpluses—or it can print moremoney,referred to as seignorage.Increases in seignorage are accompaniedby increases in inflation.  \nA Game of Chicken  \nThe key observation","cbCaiovnGK0u2UxE","https://ap.wps.com/l/cbCaiovnGK0u2UxE","pdf",2795706,11,"English","# Price Stability: Is a Tough Central Bank Enough?\n## The Conventional Wisdom\n## The Role of Fiscal Policy\n## A Game of Chicken\n## The Conventional Answer—Yes (A Tough Central Bank Is Enough)","[{\"question\":\"What is the conventional view of achieving price stability?\",\"answer\":\"Conventional wisdom holds that the price level depends on the quantity of money supplied relative to money demanded. If money supply grows faster than demand, inflation follows, and achieving price stability requires a tough, independent central bank committed to it.\"},{\"question\":\"What does the fiscal theory of the price level add to the conventional view?\",\"answer\":\"The fiscal theory view argues that a tough, independent central bank alone is not enough. An appropriate fiscal policy is also required, because conditions for repayment of current government debt via future surpluses determine how the price level evolves.\"},{\"question\":\"How does the “game of chicken” relate to inflation outcomes?\",\"answer\":\"The theory describes a tension where fiscal and monetary authorities control different sources of surplus needed to pay off debt. If the fiscal authority reduces surpluses, the monetary authority must increase seignorage (raising money growth), which leads to higher inflation at some point.\"}]","Price Stability - Is a Tough CentralBank Enough? | PDF",28]