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Modern Monetary Theory: the post-Crisis economy misunderstood?

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  • Liu, Chunping
  • Minford, Patrick
  • Ou, Zhirong

Abstract

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.

Suggested Citation

  • Liu, Chunping & Minford, Patrick & Ou, Zhirong, 2022. "Modern Monetary Theory: the post-Crisis economy misunderstood?," CEPR Discussion Papers 17501, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17501
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