The Interactions between Monetary and Fiscal Policies in Britain during the French Wars (1793–1821)
Abstract
What causes prices to evolve? This question lies at the heart of economics, a science concerned with the human decision-making process. Prices contain most relevant information for investment, consumption, or production decisions; they also reflect the equilibrium conditions of markets.
For a central bank, a comforting answer to the above question would be “Inflation is always and everywhere a monetary phenomenon in the sense that it can be produced only by a more rapid increase in the quantity of money than in output” (Friedman 1970, p. 24). In my PhD, I show, on the contrary, that the central bank is incapable of maintaining price stability when fiscal policies do not guarantee a sustainable public budget. The importance of fiscal policy for the determination of the price level has been emphasized in a number of papers, such as Chamley and Polemarchakis 1984, Del Negro and Sims 2015, Tobin 1961, Sargent and Wallace 1981, and Woodford 2001. These articles serve as the theoretical backdrop to my analysis.
