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Modern Money Theory and Interrelations between the Treasury and the Central Bank: The Case of the United States

Listed author(s):
  • Eric Tymoigne

One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space that is unconstrained by hard financial limits. Not only can they issue their own currency to pay public debt denominated in their own currency, but they can also easily bypass any self-imposed constraint on budgetary operations. Through a detailed analysis of the institutions and practices surrounding the fiscal and monetary operations of the treasury and central bank of the United States, the eurozone, and Australia, MMT has provided institutional and theoretical insights into the inner workings of economies with monetarily sovereign and nonsovereign governments. The paper shows that the previous theoretical conclusions of MMT can be illustrated by providing further evidence of the interconnectedness of the treasury and the central bank in the United States.

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File URL: http://www.levyinstitute.org/pubs/wp_788.pdf
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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_788.

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Date of creation: Mar 2014
Handle: RePEc:lev:wrkpap:wp_788
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Marc Lavoie, 2013. "The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critique," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 47(1), pages 1-32, March.
  2. Paul J. Santoro, 2012. "The evolution of Treasury cash management during the financial crisis," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 18(Apr).
  3. Milton H. Marquis, 2002. "Setting the interest rate," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct11.
  4. Stephanie Bell & L. Randall Wray, 2002. "Fiscal effects on reserves and the independence of the Fed," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 25(2), pages 263-271, December.
  5. Robert Eisner, 1998. "Save Social Security from Its Saviors," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 21(1), pages 77-92, October.
  6. Scott T. Fullwiler, 2006. "Setting interest rates in the modern money era," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(3), pages 496-525, April.
  7. Ann-Marie Meulendyke, 1998. "U.S. monetary policy and financial markets," Monograph, Federal Reserve Bank of New York, number 1998mpaf.
  8. George A. Kahn, 2010. "Monetary policy under a corridor operating framework," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-34.
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