Modern Money Theory and Interrelations between the Treasury and the Central Bank: The Case of the United States

Levy Economics Institute, Working Papers Series, Paper No. 788

27 Pages Posted: 13 Mar 2014 Last revised: 14 Mar 2014

Date Written: March 11, 2014

Abstract

One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space that is unconstrained by hard financial limits. Not only can they issue their own currency to pay public debt denominated in their own currency, but they can also easily bypass any self-imposed constraint on budgetary operations. Through a detailed analysis of the institutions and practices surrounding the fiscal and monetary operations of the treasury and central bank of the United States, the eurozone, and Australia, MMT has provided institutional and theoretical insights into the inner workings of economies with monetarily sovereign and nonsovereign governments. The paper shows that the previous theoretical conclusions of MMT can be illustrated by providing further evidence of the interconnectedness of the treasury and the central bank in the United States.

Keywords: Modern Money Theory, Monetary Policy, Fiscal Policy

JEL Classification: E02, E42, E52, E62

Suggested Citation

Tymoigne, Eric, Modern Money Theory and Interrelations between the Treasury and the Central Bank: The Case of the United States (March 11, 2014). Levy Economics Institute, Working Papers Series, Paper No. 788, Available at SSRN: https://ssrn.com/abstract=2407521 or http://dx.doi.org/10.2139/ssrn.2407521

Eric Tymoigne (Contact Author)

Lewis & Clark College ( email )

0615 SW Palatine Hill Road
Portland, OR 97204
United States

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