Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287014 
Year of Publication: 
2021
Citation: 
[Journal:] Atlantic Economic Journal [ISSN:] 1573-9678 [Volume:] 49 [Issue:] 2 [Publisher:] Springer US [Place:] New York, NY [Year:] 2021 [Pages:] 173-186
Publisher: 
Springer US, New York, NY
Abstract: 
This paper shows that so-called modern monetary theory (MMT) lacks a sound economic foundation for its far-reaching policy recommendations. This paper's main contribution to the literature concerns the theoretical foundation of MMT. A simple macroeconomic model shows that MMT is indistinguishable from the Keynesian cross model, as well as a neoclassical macroeconomic model, even when taking account of money in the sense of MMT. This result is in stark contrast to the claims of MMT proponents. Accordingly, it is asserted that MMT is a fundamentally new theory of money and monetary economics. However, MMT is admittedly based on the functional finance concept of the 1940s and money is modelled as an accounting identity. In addition, the fundamental connection between government expenditures for goods and services and the steady state equilibrium value of the national income, the so-called fiscal stance, is a well-known result that is not only consistent with MMT. The interpretation of the fiscal stance, in combination with the accounting identity for money, is a major issue because an equilibrium condition should have a certain causal direction of effects. Based on this reading of the equilibrium condition, policy recommendations encompass the fiscal dominance of monetary policy via monetization of public debt, a job guarantee by the state, along with a so-called Green New Deal. According to the results of this paper, these policy recommendations cannot be justified with MMT.
Subjects: 
Modern Monetary Theory
Keynesian cross
Public budget deficits
Fiscal policy
Monetary policy
JEL: 
B59
E42
E52
E62
H63
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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