@unpublished{162961,
  author = {Markus K. Brunnermeier and Sebastian Merkel and Yuliy Sannikov},
  title = {The Fiscal Theory of the Price Level with a Bubble},
  abstract = { This paper incorporates a bubble term in the standard Fiscal Theory of the Price Level equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides two illustrative models with closed-form solutions in which the return on government bonds is below the economy{\textquoteright}s growth rate. The government can "mine{\textquoteright}{\textquoteright} the bubble by perpetually rolling over its debt.~Despite the bubble, the price level remains determined provided government policy credibly promises primary surpluses off-equilibrium. Sufficient {\textquoteleft}{\textquoteleft}fiscal space{\textquoteright}{\textquoteright} ensures that the bubble term is attached to government bonds rather than other assets, like crypto assets. The analysis provides a new perspective on debt sustainability analysis. },
  note = {This paper incorporates a bubble term in the standard Fiscal Theory of the Price Level equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides two illustrative models with closed-form solutions in which the return on government bonds is below the economy{\textquoteright}s growth rate. The government can {\textquoteleft}{\textquoteleft}mine{\textquoteright}{\textquoteright} the bubble by perpetually rolling over its debt.\ Despite the bubble, the price level remains determined provided government policy credibly promises primary surpluses off-equilibrium. Sufficient {\textquoteleft}{\textquoteleft}fiscal space{\textquoteright}{\textquoteright} ensures that the bubble term is attached to government bonds rather than other assets, like crypto assets. The analysis provides a new perspective on debt sustainability analysis.},
  language = {eng},
}