Abstract
Since around 2016, when it became difficult to achieve the price stability target of 2 percent through monetary policy alone, the fiscal theory of the price level (FTPL) and the modern monetary theory (MMT) have been attracting attention from the perspective of fiscal policy. Sims (2013) argues that fiscal and monetary policy consist of a single mechanism, and that fiscal policy is the sole determinant of price level. This is clearly different from the policy alliance between the Governments and the Bank of Japan. On the other hand, Kelton in her book “The Deficit Myth Modern Monetary Theory and the Birth of the People’s Economy” (2020) derives the assertion that “public debt is the wealth of the state.” It is contrary to the assertion that “the public debt is too big and will collapse sooner or later.”
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Notes
- 1.
It was during this period that the already mentioned belief that “prices are a monetary phenomenon” began to crumble. After the consumption tax hike in April 2014, even if the rise in the CPI stalled, the Bank continued to resolve deflation through monetary policy alone until QQE with a negative interest rate in January 2016. However, with QQE with yield curve control in September 2016, the measures of monetary policy shifted from the quantity of the monetary base to interest rates.
- 2.
See the argument of public debt as a cushion on page 577–582 by Sims (2013).
References
Kelton, Stephanie. The Deficit Myth Modern Monetary Theory and the Birth of the People’s Economy, Public Affairs. 2020.
Sims, A. Christopher. 2013. Paper Money. American Economic Review.103(2): 563–584.
Volcker, Paul A. and Christine Harper. Keeping At It: The Quest for Sound Money and Good Government. Public Affairs. 2018.
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Sakai, Y. (2024). Fiscal Theory of Price Level and Modern Monetary Theory. In: Deflation and Fiscal Deficits. SpringerBriefs in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-97-0415-6_4
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