What fundamentally drives inflation or deflation, or the value of money? The fiscal theory of the price level offers a novel answer to this age-old question. It is particularly relevant today, with inflation that seems related to large recent deficits, and given the foundational difficulties widely acknowledged in traditional monetary, Keynesian, and New Keynesian theories.

This essay offers narrative discussions of how fiscal theory can account for prominent episodes when inflation did, or did not, occur. Why did inflation rise in the 1970s and fall in the 1980s? Why was inflation quiet in the 2010s, but then rose in 2021? Why does inflation fall in recessions and rise in booms? These stories help us to see how fiscal theory works and how to apply it in practice, more transparently than by staring at forests of equations.

Read the paper: Fiscal Histories

overlay image