Discussion paper
DP14680 The Fiscal Theory of the Price Level with a Bubble
This paper incorporates a bubble term in the standard FTPL equation
to explain why countries with persistently negative primary surpluses
can have a positively valued currency and low inflation. It also provides
an example with closed-form solutions in which idiosyncratic risk
on capital returns depresses the interest rate on government bonds
below the economy's growth rate.
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