scholarly journals Debt to GDP Ratio from the Perspective of MMT

2021 ◽  
Vol 13 (1) ◽  
pp. 1
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Economic Growth ◽  
Budget Deficit ◽  
Full Employment ◽  
National Income ◽  
Monetary Theory ◽  
Macroeconomic Model ◽  
National Debt ◽  
Government Bonds ◽  
Interest Payments ◽  
Over Time

In this note we examine the debt to GDP ratio from the perspective of MMT (Modern Monetary Theory) by a simple macroeconomic model with savings by government bonds instead of money. Mainly we will show the following results. 1) In order to maintain full employment under economic growth, the budget deficit, including interest payments on government bonds, must be positive; and if the budget deficit is smaller than this value, there will be recession with involuntary unemployment. 2) Under full employment the debt to GDP ratio approaches to a finite value over time. 3) In the underemployment case the national income is determined by the budget deficit. 4) The excessive budget deficit causes inflation. 6) In order to recover full employment from recession we need budget deficit larger than that when full employment is maintained. 5) The budget deficit, including interest payments on government bonds, equals the increase of the savings of consumers between periods (generations); and this result holds whether we have full employment or not, whether we have inflation or not. Then, the ratio of the national debt to GDP in a period is smaller than one, and even if one period constitutes of several years, the debt to GDP ratio in a year is finite.

scholarly journals A Brief Rationale for MMT Arguments

2021 ◽  
Vol 9 (2) ◽  
pp. 1
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Economic Growth ◽  
Budget Deficit ◽  
Full Employment ◽  
National Income ◽  
Monetary Theory ◽  
Macroeconomic Model ◽  
Necessary And Sufficient

In this note we examine MMT (Modern Monetary Theory) arguments by a simple macroeconomic model without microeconomic foundation. Mainly we will show the following results. 1) In the underemployment case the national income is determined by the budget deficit. 2) In the full employment case we can define the budget deficit which is necessary and sufficient to achieve full employment. 3) The excessive budget deficit causes inflation. 4) We need budget deficit to achieve and maintain full employment under economic growth. 5) We can recover recession by the budget deficit which is larger than that when full employment is maintained. Also, we show that the budget deficit equals the increase in the savings between generations.

scholarly journals On Budget Deficit under Economic Growth: Towards a Mathematical Model of MMT

2021 ◽  
Vol 10 (1) ◽  
pp. 36
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Economic Growth ◽  
Mathematical Model ◽  
Population Growth ◽  
Mathematical Analysis ◽  
Technological Progress ◽  
Budget Deficit ◽  
Overlapping Generations ◽  
Full Employment ◽  
Monetary Theory ◽  
Olg Model

Recently, a school of thought called Modern Monetary Theory (MMT) has been attracting attention, but it has not received much theoretical or mathematical analysis. In this paper, we examine the theoretical validity of the MMT argument using an overlapping generations (OLG) model that includes economic growth due to population growth, and give a generally positive evaluation of MMT. The basic idea is that a certain level of continuous budget deficit is necessary to maintain full employment when the economy is growing, that inflation occurs when the budget deficit exceeds that level, that a recession occurs when the budget deficit falls below that level, and involuntary unemployment occurs. In order to recover from a recession, a budget deficit in excess of that level is required, and that deficit need not be covered by a future budget surplus. The same can be said for growth resulting from technological progress.

scholarly journals An Elementary Mathematical Model for MMT (Modern Monetary Theory)

2021 ◽  
Vol 13 (3) ◽  
pp. 1
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Technological Progress ◽  
Utility Maximization ◽  
Budget Deficit ◽  
Monopolistic Competition ◽  
Full Employment ◽  
Supply And Demand ◽  
Profit Maximization ◽  
Static Model ◽  
Monetary Theory ◽  
Necessary And Sufficient

In recent years, a school of economics called MMT (Modern Monetary Theory) has been attracting attention, but it has not been analyzed theoretically or mathematically. This study aims to provide a theoretical basis for the skeleton of the MMT argument, while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers by means of utility functions and budget constraint, profit maximization of firms in monopolistic competition, and equilibrium of supply and demand of goods. Using a simple static model that includes economic growth due to technological progress, we will argue that: 1) a continuous budget deficit is necessary to maintain full employment when the economy is growing, and that this deficit does not have to be covered by future surpluses; 2) Inflation is caused when the actual budget deficit exceeds the level necessary and sufficient to maintain full employment. In order to avoid further inflation, it is necessary to maintain a certain level of budget deficit; 3) A shortfall in the budget deficit leads to recession and involuntary unemployment. To recover from this, a budget deficit that exceeds the level necessary to maintain full employment is required. However, since a continuous budget deficit is necessary after full employment is restored, the deficit created to overcome the recession does not need to be covered by future budget surpluses, nor should it be.

scholarly journals Effects of Internal and External Imbalances and the Role of Relative Prices on Economic Growth: Evidence From Turkey

SAGE Open ◽  
2020 ◽  
Vol 10 (2) ◽  
pp. 215824402091949
Author(s):  
Irfan Civcir ◽  
M. Emir Yücel
Keyword(s):  
Economic Growth ◽  
Budget Deficit ◽  
Aggregate Demand ◽  
Balance Of Payments ◽  
Initial Model ◽  
Relative Prices ◽  
External Imbalances ◽  
External Demand ◽  
Interest Payments

Balance of payments constrained growth model considers that if a country has a chronic external deficit, economic growth can be constrained. Initial model extended by taking into account the effects of capital flows, external debt sustainability, interest payments, budget deficit or public debt, simultaneous effect of internal and external imbalance, and the role of relative prices. We further incorporate Turkey’s high intensity of imports in the aggregate demand components and estimated the model with system estimator. The new version of the model improves significantly explaining the growth in Turkey. Our results reveal that economic growth in Turkey constrained by internal and external imbalances and relative prices play a significant role. Policies aimed at changing the structure of the imports and exports are the most effective for achieving higher growth. It is also shown that economic growth in Turkey highly depends on external demand when the strong depreciation of the domestic currency also acts as a stimulus to growth.

scholarly journals Adaptation and Loss Aversion in the Relationship Between GDP and Subjective Well-Being

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Matti Hovi ◽  
Jani-Petri Laamanen
Keyword(s):  
Economic Growth ◽  
Loss Aversion ◽  
National Income ◽  
Well Being ◽  
Macro Level ◽  
Subjective Well Being ◽  
Long Run ◽  
Short Run ◽  
The Relationship ◽  
Over Time

Abstract We examine the roles of macro-level adaptation — including social comparison effects becoming more important over time — and macroeconomic loss aversion in the time-series relationship between national income and subjective well-being. Models allowing for these phenomena are applied to cross-country panel data. We find evidence for macroeconomic loss aversion that becomes more important over time: the effects of economic growth become small and statistically insignificant in the long run, whereas the effects of contractions are large and long-lasting. The results are consistent with the Easterlin paradox and point to it being explained by macro-level adaptation to economic growth. Our results highlight the importance of allowing for both dynamics to distinguish long-run from short-run effects and asymmetries to recognize the important effects of contractions. Failing to do the former leads to a misleading impression of the long-run relationship between economic growth and well-being.

scholarly journals Very Simple Mathematical Model of MMT (Modern Monetary Theory)

2021 ◽  
Vol 11 (3) ◽  
pp. 78
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Technological Progress ◽  
Budget Deficit ◽  
Full Employment ◽  
Returns To Scale ◽  
Perfect Competition ◽  
Monetary Theory ◽  
Budget Deficits ◽  
Growing Economy ◽  
The One ◽  
Constant Returns To Scale

The purpose of this paper is to provide a concise theoretical and mathematical foundation for the major parts of the debate in the recently discussed school of economics called Modern Monetary Theory (MMT), while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers using budget constraints and utility functions, and equilibrium of demand and supply of goods under perfect competition with constant returns to scale technology. By a two-periods overlapping generations (OLG) model in which the economy grows by technological progress, we will show that: 1) We need a budget deficit to achieve full employment with constant price when the economy grows by technological progress. This budget deficit should not be offset by future surplus; 2) A budget deficit that exceeds the level necessary to maintain full employment in a growing economy with constant price will cause inflation. A stable budget deficit is required to prevent further inflation; 3) A budget deficit that is insufficient to maintain full employment will cause a recession with involuntary unemployment. A budget deficit larger than the one necessary and sufficient to maintain full employment without a recession can overcome a recession caused by insufficient budget deficit and restore full employment. The deficit created to overcome the recession should not be offset by subsequent surpluses, since full employment can then be maintained through constant budget deficits.

scholarly journals Is Modern Monetary Theory’s prescription to spend without reference to tax receipts an invitation to tyranny?

2021 ◽  
Vol 71 (3) ◽  
pp. 431-450
Author(s):  
Brian P. Hanley
Keyword(s):  
Full Employment ◽  
National Income ◽  
Political Stability ◽  
Monetary Theory ◽  
Tax Base ◽  
Past Half Century ◽  
Formal Requirement ◽  
History Of ◽  
Political Choices

Abstract A set of policy prescriptions based on Modern Monetary Theory (MMT) have been developed that are independent of the monetary model, which are often presented together, in a context that does not require taxation: guaranteed income, job guarantee and full employment. These are enabled by the ability of a government to deficit spend as needed, as long as government controls its sovereign currency. Here I raise the concern that implementing MMT accounting could cause increases in political power inequality relative to citizens not seen since the medieval era or before. The assumption that spending and tax policy in an MMT system would occur as proponents expect is contradicted by the history of political choices regarding spending and taxation over the past half-century. The record of behaviour by politicians in the nations where foreign aid money “fell from the sky,” thus divorcing national income from the tax base, also contradicts this idea. With removal of the formal requirement for taxation, politicians operating in an MMT system will have little inherent reason in the short term to treat citizens well except moral suasion. This should provide a foundation for tyranny unparalleled in modern history. Incorporating progressive taxation into MMT’s corpus, for the express purpose of economic and political stability, is suggested in order to achieve the overall aims of the MMT policy advocates. However, this may not be sufficient. In addition, considering increasing the role of governors/leaders of states within the monetary unions may be useful, because those governments do need to follow the old rules of taxation to support spending, and this may provide a counterweight.

scholarly journals Modern Monetary Theory: A Solid Theoretical Foundation of Economic Policy?

2021 ◽  
Author(s):  
Aloys L. Prinz ◽  
Hanno Beck
Keyword(s):  
Equilibrium Condition ◽  
Theoretical Foundation ◽  
National Income ◽  
Monetary Theory ◽  
Macroeconomic Model ◽  
Policy Recommendations ◽  
Cross Model ◽  
Goods And Services ◽  
Causal Direction ◽  
Fiscal Dominance

AbstractThis 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.

scholarly journals Study of Population Growth Impact on Economic Growth during (2003-2017) in Afghanistan

2021 ◽  
Vol 8 (1) ◽  
pp. 49-56
Author(s):  
Ahmad Farid Morwat
Keyword(s):  
Economic Growth ◽  
Economic Development ◽  
Foreign Direct Investment ◽  
Population Growth ◽  
Direct Investment ◽  
National Income ◽  
Estimation Method ◽  
Special Importance ◽  
Demographic Changes ◽  
Over Time

Achieving high economic growth is one of the significant purposes, which all countries seek to achieve, and achieving it requires a realistic analysis of country’s economy and a better understanding of the principles and rules of economic growth. Meanwhile, demographic changes over time, as one of the most important issues impacting different parts of societies gaining special importance so that demographic changes can be tangible in investment, saving, and overly in economic growth. The relationship between population growth and economic development has been analyzed theoretically and empirically over time by different economists. Some economists believe which fast population growth prevents economic growth; while others believe, that population growth leads to economic growth due to increased demand, level of production and national income. The aim of this study was to investigate impact of population growth on economic growth during (2003-2017) in Afghanistan. In this study, it has been used the data which provided by World Development Index (WDI) Central statistics, books, journals, scientific and research journals and other related articles. For measuring the GDP growth and simple model squares estimation method from programs such as Excel, Eviews and Pass have been used indeed. Economic growth as a dependent variable, population growth, unemployment average, and foreign direct investment as an explanatory (independent) have been implemented. The outcomes showcase that population growth has a positive effect on economic growth (1%) increase in population growth which causes economic development in order to increase 2.4%. On the other hand, according to obtained results from model summary; gained determination is 0.921. It means the dependent variable of economic growth is elaborated almost 92% by independent variables of population growth, unemployment, and foreign direct investment. This demonstrates strong population growth impact on economic growth and its correlation intensity is almost 1.

Is money the creation of the state or the market? (On the “modern monetary theory” as described in the textbook by W. Mitchell, L. R. Wray and M. Watts “Macroeconomics”)

2020 ◽  
pp. 121-134
Author(s):  
S. A. Andryushin
Keyword(s):  
Public Debt ◽  
Scientific Community ◽  
Full Employment ◽  
Term Effect ◽  
Scientific Concept ◽  
Monetary Theory ◽  
Left Wing ◽  
Medium Term ◽  
Short Term ◽  
Stimulation Of

In 2019, a textbook “Macroeconomics” was published in London, on the pages of which the authors presented a new monetary doctrine — Modern Monetary Theory, MMT, — an unorthodox concept based on the postulates of Post-Keynesianism, New Institutionalism, and the theory of Marxism. The attitude to this scientific concept in the scientific community is ambiguous. A smaller part of scientists actively support this doctrine, which is directly related to state monetary and fiscal stimulation of full employment, public debt servicing and economic growth. Others, the majority of economists, on the contrary, strongly criticize MMT, arguing that the new theory hides simple left-wing populism, designed for a temporary and short-term effect. This article considers the origins and the main provisions of MMT, its discussions with the mainstream, criticism of the basic tenets of MMT, and also assesses possible prospects for the development of MMT in the medium term.

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