Is Overt Monetary Financing a viable option in the post-pandemic era?

Martin Watts

Chapter 30 in The Elgar Companion to Modern Money Theory, 2024, pp 386-398 from Edward Elgar Publishing

Abstract: In the aftermath of the Global Financial Crisis, many governments championed loose monetary policy in conjunction with fiscal austerity which led to stagnation. In response, some recommended the implementation of Overt Monetary Financing (OMF) - ceasing to issue government bonds even when running deficits - often identified with ‘debt monetization’ or ‘helicopter drops’. These policy debates came front and centre during the Covid-19 pandemic during which many countries undertook higher net fiscal spending to arrest the decline in their economies. These measures revealed that Treasuries were not dependent on the sale of public debt to enable their fiscal deficits. Drawing on the insights of Modern Monetary Theory, this chapter sheds light both on the terminological confusions and the lack of clarity about how these innovative forms of fiscal policy would work, and also provides a balanced assessment of the merits and shortcomings associated with the implementation of OMF.

Keywords: Economics and Finance; Politics and Public Policy (search for similar items in EconPapers)
Date: 2024
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