Reconsideration of modern monetary theory-type fiscal and monetary stabilization policy from a viewpoint of the dynamic Keynesian model

Ken Matsumoto ()
Additional contact information
Ken Matsumoto: Chuo University

Asia-Pacific Journal of Regional Science, 2024, vol. 8, issue 2, No 14, 737-754

Abstract: Abstract In this paper, we examine macroeconomic stability and instability of a dynamic Keynesian Model with a theoretical foundation of Modern Monetary Theory (MMT), often considered as unconventional within mainstream economics. MMT fundamentally emphasizes proactive fiscal policies and passive monetary policies, always striving to maximize employment. A common critique of MMT is the assertion that governments find it challenging to control output and inflation through a fiscal policy. It is also argued that governments should always demonstrate responsibility for the fiscal balance, and without such responsibility, the “credibility” of government bonds is damaged. Opposingly, this study finds that establishing credibility in inflation targets and consistently pursuing proactive fiscal policies in response to deficient output gaps are effective in managing inflation from escalating uncontrollably, which may help stabilize the economy. Although the fundamental tenets of MMT may not heavily emphasize inflation target, which belong to monetary policies, the importance of fiscal policies is reaffirmed by the conclusions drawn from this paper, likely ensuring that crucial aspects of MMT are not disregarded.

Keywords: MMT; Dynamic (in)stability; Dynamic Keynesian model (search for similar items in EconPapers)
JEL-codes: E12 E31 E52 E62 E63 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s41685-024-00341-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:apjors:v:8:y:2024:i:2:d:10.1007_s41685-024-00341-x

Ordering information: This journal article can be ordered from
https://www.springer ... cience/journal/41685

DOI: 10.1007/s41685-024-00341-x

Access Statistics for this article

Asia-Pacific Journal of Regional Science is currently edited by Yoshiro Higano

More articles in Asia-Pacific Journal of Regional Science from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().