Monetary Theory of the Price Level (物価水準の貨幣理論)

9 Pages Posted: 7 Aug 2019 Last revised: 16 Sep 2019

Date Written: August 3, 2019


Japanese version (original):

FTPL (Fiscal Theory of the Price Level) is a theory describes that deriving a integrated government budget constraint equation which is an integration of government and central bank, the Price level will fluctuates by considering it as a equilibrium equation. However, in this model, price level fluctuations are abstracted, and the specific mechanism is unclear.

So the gist of this paper is that by mathematically modeling endogenous money supply theory and tax money theory which are the basis of modern money theory (MMT) and combining them with the budget constraint formula of the integrated government debt, make the mechanism of price level fluctuation due to the change of the integrated government debt clear.

At the time of writing, modern monetary theory has not been mathematically modeled, so one of the novelties of this paper is that it mathematically models the theory which forms the basis of modern monetary theory.

In addition to explaining the policies that should be taken based on the mechanism of price level fluctuations that have been identified, we show that prohibiting credit creation by using the issue of maximizing the utility of households is a Pareto improvement.

Keywords: MTPL, FTPL, MMT

JEL Classification: E

Suggested Citation

Kimura, Yu, Monetary Theory of the Price Level (物価水準の貨幣理論) (August 3, 2019). Available at SSRN: or

Yu Kimura (Contact Author)

Kyoto University ( email )

Kyoto, 606-8501


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