Modern Money Theory

Biagio Bossone

World Economics, 2023, vol. 24, issue 4, 39-60

Abstract: The article criticizes modern money theory (MMT), which is a macroeconomic policy that aims to achieve full employment by using money-financed fiscal deficits, without using any formal modelling. The article claims that MMT policy would not work in an open and internationally highly financially integrated economy, because it would either cause the money stock to grow unsustainably large or require domestic interest rates to be set at levels that would contradict the goal of full employment and create economic and financial instability. The article argues that MMT can only work, at best and if at all, in specific country circumstances, such as having high policy credibility or issuing an international reserve currency, which can prevent the negative effects of MMT policy and make expansionary demand shocks effective.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:wej:wldecn:910

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