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Global Finance and Effectiveness of Macro-Policies

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  • Biagio Bossone

Abstract

The Portfolio Theory of Inflation (PTI) incorporates a global perspective on the analysis of macro policy effectiveness. According to the PTI, in open and internationally highly financially integrated economies: The intertemporal budget constraint (IBC) of governments is endogenous to global investment choices: it is more flexible for credible countries and tighter for less credible ones, and the IBC of highly credible countries becomes even more flexible at times of global crisis. Macro-policies are effective in credible economies and less effective (and potentially inflationary) in non-credible economies (with flatter Phillips curves being observed in credible countries and becoming even flatter in times of global crisis). Governments can reap no advantage from redenominating their debt or increasing the share of their debt held by residents and monetary financing of public deficits is effective as an anti-recessionary, short-term stopgap, but it is not sustainable as a policy to sustain full employment in the longer run.

Suggested Citation

  • Biagio Bossone, 2020. "Global Finance and Effectiveness of Macro-Policies," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 21(2), pages 135-164, April.
    • Handle: RePEc:wej:wldecn:790
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    Cited by:

    1. Biagio Bossone, 2021. "Exercising Economic Sovereignty in Today's Global Financial World: The Lessons from John Maynard Keynes," Working Papers PKWP2120, Post Keynesian Economics Society (PKES).
    2. Biagio Bossone, 2020. "Why MMT can’t work: A Keynesian Perspective," Working Papers PKWP2020, Post Keynesian Economics Society (PKES).
    3. Biagio Bossone, 2021. "Why MMT can’t work," International Journal of Economic Policy Studies, Springer, vol. 15(1), pages 157-181, February.
    4. Biagio Bossone, 2021. "Global Capital, the Exchange Rate, and Policy (In)Effectiveness," Working Papers PKWP2113, Post Keynesian Economics Society (PKES).
    5. Biagio Bossone, 2024. "Keynesian Policy Space in "Globalized" Economies," Working Papers PKWP2405, Post Keynesian Economics Society (PKES).

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