A Critique of Modern Money Theory and the Disequilibrium Dynamics of Banking and Government Finance

Tianhao Zhi
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Tianhao Zhi: Finance Discipline Group, UTS Business School, University of Technology, Sydney, http://www.uts.edu.au/about/uts-business-school/finance

No 184, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: The Modern Money Theory, originated from the seminal work of Knapp (1905) that established the “chartalism school of monetary theory” and later on, synthesized by so-called “neo-chartalists” such as Wray (2012), is a descriptive economic theory that examines the procedures and consequences of using government-issued tokens as the unit of money. Despite its high relevance in today's policy arena that demands a thorough understanding over the modern fiat monetary system, MMT is generally not well-received by mainstream academics due to some of its radical claims. In an experimental and preliminary manner, this paper proposes a set of disequilibrium models that aims to take a further investigation over the balance sheet effects of those transactions discussed by MMT from a dynamic perspective. We contend that some of the claims made by MMT are fallacious due to its omission of dynamic and behavioural aspects. The framework proposed in this paper would also be useful for future research from a dynamic MMT perspective.

Keywords: Modern Money Theory (MMT); endogenous money; interbank market; fiscal policy; disequilibrium dynamics (search for similar items in EconPapers)
JEL-codes: E12 E52 E62 G21 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2015-08-01
New Economics Papers: this item is included in nep-ger, nep-hpe, nep-mac, nep-mon and nep-pke
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