Seismic Shifts in Economic Theory and Policy from the Bernanke Doctrine to Modern Money Theory

Pavlina R. Tcherneva and Eric Tymoigne

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper evaluates the relationship between monetary and fiscal policy and the relative effectiveness of macroeconomic stabilization through the lens of Modern Money Theory (MMT). We articulate previously-neglected aspects of monetary sovereignty to offer a new interpretation of the Bernanke Doctrine that emerged in the wake of the 2008 Global Financial crisis. This Doctrine validated key MMT precepts and paved the way for fiscal policy activism in response to COVID19. The paper argues that fiscal and monetary policy coordination is not new or rare. It is an intrinsic feature of sovereign monetary regimes, allowing for more effective policy responses to financial crises or pandemics. To the extent that monetary policy is able to stabilize an unstable economy, it is largely due to its fiscal components. This recognition also calls for a rethinking of fiscal policy. Originally issued as EDI Working Paper No. 08, 2022.

Keywords: Modern Money Theory; MMT; Bernanke; Great Financial Crisis; history of money; monetary systems; monetary sovereignty; tax-driven money; consolidated government; government debt and deficit; quantitative easing; fiscal components of monetary policy; nonstandard Open Market Operations; COVID fiscal relief (search for similar items in EconPapers)
JEL-codes: E12 E58 E61 H62 H63 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.levyinstitute.org/wp-content/uploads/2025/03/wp_1064.pdf (application/pdf)

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:lev:wrkpap:wp_1064

Access Statistics for this paper

More papers in Economics Working Paper Archive from Levy Economics Institute
Bibliographic data for series maintained by Lindsey Carter ().