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Modern Monetary Theory: the post-Crisis economy misunderstood?

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We set out Modern Monetary Theory (MMT) as a full DSGE model, and test it by indirect inference on post Financial Crisis US data, alongside a standard New Keynesian, NK, model. The MMT model is rejected, while the NK model has a high probability. We then evaluate replacing the fiscal and monetary policies within the NK model by MMT policies, and find that they imply a material loss of welfare

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  • Liu, Chunping & Minford, Patrick & Ou, Zhirong, 2022. "Modern Monetary Theory: the post-Crisis economy misunderstood?," Cardiff Economics Working Papers E2022/13, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2022/13
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    Keywords

    Modern Monetary Theory; DSGE model; fiscal activism; Wald test; indirect inference;
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