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Has Japan Been Following Modern Money Theory Without Recognizing It? No! And Yes

Author

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  • Yeva Nersisyan
  • L. Randall Wray

Abstract

Modern Money Theory (MMT) economists have used Japan as an example of a country that demonstrates that high deficits and debt do not lead to insolvency, high interest rates, or inflation. MMT insists that governments that issue their own sovereign currency cannot be forced into insolvency, that they can make all payments as they come due, and that they do not really spend tax revenue or borrow in their own currency--with Japan serving as an example of a country that does not face financial budget constraints as normally defined. In this paper we evaluate whether Japan is the poster child of MMT and argue that policy-wise Japan is not following MMT recommendations; in fact, it is generally adopting policies that are precisely the opposite of those proposed by MMT, consistently adopting the path of stop-go fiscal measures and engaging in inadequate and temporary fiscal stimuli in the face of recessions, followed by austerity whenever the economy has seemed to recover.

Suggested Citation

  • Yeva Nersisyan & L. Randall Wray, 2021. "Has Japan Been Following Modern Money Theory Without Recognizing It? No! And Yes," Economics Working Paper Archive wp_985, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_985
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    File URL: http://www.levyinstitute.org/pubs/wp_985.pdf
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    References listed on IDEAS

    as
    1. L. Randall Wray, 2019. "MMT and Two Paths to Big Deficits," Challenge, Taylor & Francis Journals, vol. 62(6), pages 398-415, November.
    2. Tanweer Akram & Anupam Das, 2014. "Understanding the Low Yields of the Long-Term Japanese Sovereign Debt," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(2), pages 331-340.
    3. Scott Fullwiler & L. Randall Wray, 2010. "Quantitative Easing and Proposals for Reform of Monetary Policy Operations," Economics Working Paper Archive wp_645, Levy Economics Institute.
    4. Eric Tymoigne, 2019. "Debunking the Public Debt and Deficit Rhetoric," Challenge, Taylor & Francis Journals, vol. 62(5), pages 281-298, September.
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    Cited by:

    1. 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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    More about this item

    Keywords

    Modern Money Theory; Budget Deficits; Sovereign Debt; Japanese Government Debt; MMT Policy;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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