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

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  • Eric Tymoigne

Abstract

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.

Suggested Citation

  • Eric Tymoigne, 2014. "Modern Money Theory and Interrelations between the Treasury and the Central Bank: The Case of the United States," Economics Working Paper Archive wp_788, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_788
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    References listed on IDEAS

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    1. Marc Lavoie, 2013. "The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critique," Journal of Economic Issues, Taylor & Francis Journals, vol. 47(1), pages 1-32.
    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, Taylor & Francis Journals, vol. 25(2), pages 263-271.
    5. Robert Eisner, 1998. "Save Social Security from Its Saviors," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 21(1), pages 77-92, September.
    6. Scott T. Fullwiler, 2006. "Setting interest rates in the modern money era," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 28(3), pages 496-525.
    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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    Citations

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    Cited by:

    1. Scott T. Fullwiler, 2016. "The Debt Ratio and Sustainable Macroeconomic Policy," World Economic Review, World Economics Association, vol. 2016(7), pages 12-42, July.
    2. Cecilia Maigua & Gekara Mouni, 2016. "Influence of Interest Rates Determinants on the Performance of Commercial Banks in Kenya," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(2), pages 121-133, April.
    3. Eric Tymoigne & L. Randall Wray, 2015. "Modern Money Theory: A Reply to Palley," Review of Political Economy, Taylor & Francis Journals, vol. 27(1), pages 24-44, January.
    4. Greg Hannsgen & Tai Young-Taft, 2015. "Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility," Economics Working Paper Archive wp_839, Levy Economics Institute.

    More about this item

    Keywords

    Modern Money Theory; Monetary Policy; Fiscal Policy;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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