Fairly Recently: Must- and Should-Reads, and Writings... (March 10, 2019)

Nick Rowe: Reverse-Engineering the MMT Model: "The MMT AD curve is vertical.... Fiscal policy can be used, and must be used, because this model, with its vertical AD curve, has no inherent tendency towards 'full employment' output...

...Since monetary policy has no role to play in determining AD, the central bank... might as well set a nominal interest rate near zero, since this reduces... transactions costs of people converting between currency and bonds.... The rate of interest plays no allocative role in savings and investment. It does not coordinate intertemporal consumption and production plans of households and firms. It merely re-distributes wealth between borrowers and lenders....

The central bank... might as well set a rate of interest below the growth rate of GDP.... [Then] there is no long run government budget constraint in the normal sense. The only constraint on fiscal policy is that if the government runs too big a deficit and/or allows the debt to grow too large this would cause the IS to shift to the right of full employment output, and so causes accelerating inflation...


#noted

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