The Fatal Flaws of Modern Money Theory

Biagio Bossone

Chapter Chapter 15 in Trailblazing Visions of Money in Economic Theory, 2025, pp 383-404 from Springer

Abstract: Abstract This chapter considers international financial integration as key to evaluate the effectiveness of the macroeconomic policy propounded by the supporters of Modern Money Theory (MMT)—a theory that has recently attracted the sympathy of a growing share of heterodox economists. The chapter shows that when the value of the domestic currency is determined by markets that are dominated by Global Investors, the monetization of fiscal deficits—which is central to MMT—cannot work as an effective and sustainable macroeconomic policy program aimed to achieve and maintain full-employment output in economies suffering from Keynesian unemployment or underemployment (unless very special and country-specific circumstances hold). Financially integrated economies that implemented MMT policies would either see their money stock grow unsustainably large, or they would have to adjust domestic interest rates to levels that would be inconsistent with the policy objective, leading to economic and financial instability instead.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-031-82544-6_15

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DOI: 10.1007/978-3-031-82544-6_15

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