Does Fiscal Policy Affect the Monetary Transmission Mechanism? A Monetary Theory of Production (MTP) Response to the New Consensus Macroeconomics (NCM) Perspective

18 Pages Posted: 7 Apr 2017

See all articles by Giuseppe Fontana

Giuseppe Fontana

Leeds University Business School (LUBS); Leeds University Business School (LUBS) - Division of Economics

Andrea Pacella

Università del Salento

Riccardo Realfonzo

University of Sannio

Date Written: May 2017

Abstract

Drawing on the contributions of Augusto Graziani to the so‐called monetary theory of production, this article aims to show that an accommodative monetary policy—as defended in the new consensus macroeconomics theory and supported by current practice around the world—has the maximum effect in stimulating aggregate demand and income when it is implemented in conjunction with a coordinated discretionary fiscal policy that boosts the demand for and the supply of loans via the reduction of the liquidity risk and the insolvency risk. As a result, the potentially beneficial effects of the traditional Keynesian fiscal multiplier are significantly amplified.

Suggested Citation

Fontana, Giuseppe and Pacella, Andrea and Realfonzo, Riccardo, Does Fiscal Policy Affect the Monetary Transmission Mechanism? A Monetary Theory of Production (MTP) Response to the New Consensus Macroeconomics (NCM) Perspective (May 2017). Metroeconomica, Vol. 68, Issue 2, pp. 378-395, 2017, Available at SSRN: https://ssrn.com/abstract=2945777 or http://dx.doi.org/10.1111/meca.12166

Giuseppe Fontana (Contact Author)

Leeds University Business School (LUBS) ( email )

Leeds, LS2 9JT
United Kingdom

Leeds University Business School (LUBS) - Division of Economics ( email )

Leeds LS2 9JT
United Kingdom

Andrea Pacella

Università del Salento

via Taranto 35
Piazza Tancredi, N.7
Lecce, Lecce 73100
Italy

Riccardo Realfonzo

University of Sannio ( email )

Benevento, 82100
Italy

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