Modern Monetary Theory and European Macroeconomics

Ehnts, Dirk

doi:10.4324/9781315623030

Cited by 27 publications

(18 citation statements)

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“…These basic observations are by no means new, and have been known at least since the work of Keynes (1936). The fact that they seem to have been forgotten by most financial economists-outside of the post-Keynesian tradition-has led certain authors to conclude that we live in a "dark age of macroeconomics" [44].…”

Section: Households Production Firms Banksmentioning

confidence: 99%

“…SGBs-a form of T-bills-are the cornerstone of financial markets. Financial theory refers to T-bills as the "risk-free asset" because illiquidity and insolvency risks are nil if the government borrows in a sovereign currency [44,45]. Security-pricing models (such as the CAPM) indeed proceed by adding an asset-specific mark-up (the risk-premium) to the T-bill rate of return in order to determine equilibrium investment return.…”

Section: The Case For Sgb Issuesmentioning

confidence: 99%

“…In what follows, we will therefore examine the impact of the sovereign green bond issue on the various parties involved in this particular institutional setting. We will use the analytical framework provided in [44], and we will assume that the government is spending in the private sector to undertake its climate policy (note, however, that the results would be unchanged were spending made in the public sector).…”

Section: Sgb Issues In the Eurozonementioning

confidence: 99%

“…The ECB, in turn, has to provide reserve on demand at its base interest rate, up to the value of the collateral pledged by the bank requesting reserves. Reserves therefore do not, in any way, constrain lending in the economy [15,44,45].…”

Section: Modifying the Ecb Collateral Frameworkmentioning

confidence: 99%

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Financing the Sustainable Development Goals

Lagoarde‐Segot

2020

Sustainability

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This paper contends that carving out pathways to finance the sustainable development goal (SDG) agenda entails to reconsider tacit assumptions regarding the functioning of financial systems. We first use a history of economic thought perspective to demonstrate the flaws of the loanable fund theory, which has come to underlie SDG finance strategies. We then introduce the alternative endogenous money theory using a consistent theoretical and accounting framework. This allows us to identify and discuss a set of financing mechanisms that would permit to bridge the SDG budget gap. These mechanisms include the issuing of sovereign green bonds, the modification of the European Central Bank's collateral framework, changes in capital adequacy ratios, a market of SDG lending certificates and the introduction of rediscounting policies. We back up the discussion with examples from economic history.Sustainability 2020, 12, 2775 2 of 22 that market prices signal the true value of financial assets, and that social welfare results from the maximization of investor wealth) need to be re-examined [12].It is within this broader context that this paper seeks to make three specific contributions to the literature on SDG finance. First, we contend that bridging the SDG finance gap requires excavating-and critically assessing-a set of tacit beliefs, which seemingly underlie the current framing of finance research and policies. Social studies of finance have indeed established that the behavior of actors (and the legal/technical system within which they operate) is shaped by underlying theoretical representations [12][13][14]. As stated in Chambost et al. (2019, p.3): "financial theories are embodied in tools, rules and artefacts acting as vectors influencing and legitimizing financial practices". We hope to fill a gap in this literature by showing that one specific conception of money and finance-the loanable fund theory (LFT)-has fundamentally influenced economic policy over the course of the past four decades.Second, we use a history of economic thought perspective-going back to the original texts-to show that the LFT does not properly account for the mechanisms of credit creation, and provides, overall, an inaccurate portrayal of the relationship between finance, savings, interest rates and investment in the real world. Several major economists (Schumpeter, Wicksell, Keynes) and central bankers around the world, have repeatedly demonstrated the logical flaws of the loanable fund theory [15]. This leads us to highlight that the LFT is a powerful-yet concealed-mental hindrance to the development of appropriate SDG finance policies.Third, we offer an in-depth discussion of the alternative endogenous money theory championed by post-Keynesian authors. We use a sound accounting and theoretical framework to carve out policy pathways for "mission-oriented" public and private investment in response to SDGs. In so doing, we contribute to recent research in ecological post-Keynesian macroeconomics [16] and to the discussion of policy proposals...

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Section: Households Production Firms Banksmentioning

confidence: 99%

Section: The Case For Sgb Issuesmentioning

confidence: 99%

Section: Sgb Issues In the Eurozonementioning

confidence: 99%

Section: Modifying the Ecb Collateral Frameworkmentioning

confidence: 99%

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Financing the Sustainable Development Goals

Lagoarde‐Segot

2020

Sustainability

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“…While a demand expansion led by the private sector increases private indebtedness and thereby financial fragility -as the case of the GFC as well as other past financial crises, in which private sector's debt and leverage positions increased until they reached an unbearable threshold, underline -, a government-led expansion actually enhances financial stability by providing safe assets and income to the private sector. This is backed by the sectoral balance analysis, which, however, is beyond the scope of this paper (Bell 2001, Ehnts 2016, Mitchell, Wray and Watts 2019, Mosler 2012, Wray 2015.…”

Section: Introductionmentioning

confidence: 96%

The Job Guarantee: Full Employment, Price Stability and Social Progress

Ehnts

Höfgen²

2019

Self Cite

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This paper presents the idea of the Job Guarantee (JG), which is a logical extension of the paradigm of a tax-driven fiat currency. The JG involves the government offering a public purpose-oriented job with a fixed hourly wage and job benefits to anyone willing to work. The JG as a bottom-up approach is locally administered but federally funded. As the analytical lens of MMT reveals, a monetarily sovereign government is always able to provide the spending required. Macroeconomically, the JG works as an automatic countercyclical stabilizer and an excellent tool for aggregated demand management, ensuring the economy is continuously operating at full capacity. On top, the JG uses an employed buffer stock approach as a superior means to maintain price stability. Next to its favourable macroeconomic impacts, the JG offers many social benefits, particularly related to continuous employment, working conditions in the private sector, power relations in the labour market and democracy. While the JG and Universal Basic Income (UBI) are often discussed as comparable, competing policy proposals, the JG addresses more macroeconomic and social issues than the UBI does. This paper concludes that the JG qualifies for being the single most effective policy in order to drive the economy towards continuous full employment and price stability while realizing additional social benefits.

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Why Pufendorf Matters

Ehnts

Jochem

2020

Samuel Pufendorf and the Emergence of Economics as a Social Science

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Modern Monetary Theory and European Macroeconomics

Cited by 27 publications

References 0 publications

Financing the Sustainable Development Goals

Financing the Sustainable Development Goals

The Job Guarantee: Full Employment, Price Stability and Social Progress

Why Pufendorf Matters

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