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.