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When the Interest Rate on the National Debt Is a Policy Variable (and “Printing Money” Does Not Apply)

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  • Scott Fullwiler

Abstract

Modern Monetary Theory (MMT) argues that the interest rate on the national debt for a monetary sovereign is a policy variable, not subject to whether bond markets “accept” or “reject” it. This paper defines measures of the components of the standard analysis of fiscal sustainability. It then methodically describes the Federal Reserve's operations relevant for understanding why interest rates on government debt in the United States have been and continue to be driven by monetary policy. A corollary that emerges—“printing money,” as economists usually understand it—is not applicable and has never been advocated by MMT.

Suggested Citation

  • Scott Fullwiler, 2020. "When the Interest Rate on the National Debt Is a Policy Variable (and “Printing Money” Does Not Apply)," Public Budgeting & Finance, Wiley Blackwell, vol. 40(3), pages 72-94, September.
    • Handle: RePEc:bla:pbudge:v:40:y:2020:i:3:p:72-94
    DOI: 10.1111/pbaf.12249
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    References listed on IDEAS

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    1. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
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    4. Tanweer Akram & Huiqing Li, 2017. "An Inquiry Concerning Long-term US Interest Rates Using Monthly Data," Economics Working Paper Archive wp_894, Levy Economics Institute.
    5. Tanweer Akram & Huiqing Li, 2018. "The Dynamics of Japanese Government Bonds' Nominal Yields," Economics Working Paper Archive wp_906, Levy Economics Institute.
    6. Martin Watts & Timothy Sharpe, 2013. "Immutable laws of debt dynamics," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(1), pages 59-84.
    7. Stephanie Bell, 2000. "Do Taxes and Bonds Finance Government Spending?," Journal of Economic Issues, Taylor & Francis Journals, vol. 34(3), pages 603-620, September.
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    Cited by:

    1. Olk, Christopher & Schneider, Colleen & Hickel, Jason, 2023. "How to pay for saving the world: Modern Monetary Theory for a degrowth transition," LSE Research Online Documents on Economics 120343, London School of Economics and Political Science, LSE Library.
    2. Dirk Ehnst, 2022. "Modern Monetary Theory: The Right Compass for Decision-Making," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(2), pages 128-134, March.

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