Money, fiscal policy, and interest rates: A critique of Modern Monetary Theory
AbstractThis paper excavates the set of ideas known as modern monetary theory (MMT). The principal conclusion is that the macroeconomics of MMT is a restatement of elementary well-understood Keynesian macroeconomics. There is nothing new in MMT's construction of monetary macroeconomics that warrants the distinct nomenclature of MMT. Moreover, MMT over-simplifies the challenges of attaining non-inflationary full employment by ignoring the dilemmas posed by Phillips curve analysis; the dilemmas associated with maintaining real and financial sector stability; and the dilemmas confronting open economies. Its policy recommendations also rest on over-simplistic analysis that takes little account of political economy difficulties, and its interest rate policy recommendation would likely generate instability. At this time of high unemployment, when too many policymakers are being drawn toward mistaken fiscal austerity, MMT's polemic on behalf of expansionary fiscal policy is useful. However, that does not justify turning a blind eye to MMT's oversimplifications of macroeconomic theory and policy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 109-2013.
Length: 36 pages
Date of creation: 2013
Date of revision:
modern monetary theory; money financed budget deficits; fiscal policy;
Find related papers by JEL classification:
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-MAC-2013-03-16 (Macroeconomics)
- NEP-MON-2013-03-16 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William Poole, 1970.
"Optimal choice of monetary policy instruments in a simple stochastic macro model,"
57, Board of Governors of the Federal Reserve System (U.S.).
- Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
- William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
- Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1, July.
- Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
- James Tobin, 1982.
"Money and Finance in the Macro-Economic Process,"
Cowles Foundation Discussion Papers
613R, Cowles Foundation for Research in Economics, Yale University.
- Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
- Louis-Philippe Rochon & Matias Vernengo & Louis-Philippe Rochon & Matias Vernengo, 2003. "State money and the real world: or chartalism and its discontents," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 26(1), pages 57-67, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Nemitz).
If references are entirely missing, you can add them using this form.