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Sector financial balances and Modern Monetary Theory

In: The Elgar Companion to Modern Money Theory

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  • Robert W. Parenteau

Abstract

This chapter explores the sector financial balances approach and its role in Modern Monetary Theory. Financial balances are defined using an aggregate income and expenditures orientation. A financial balance map is explored to offer insights about the interdependence of sector balances. Pursuit of fiscal surpluses, or constraints on fiscal deficits, reduce the outcomes available for private sector and foreign financial balances. Unless the current account balance exceeds the fiscal balance, the private sector is consigned to deficit spending, which can lead to financial instability in households and firms. When financial balances in the euro area are examined, it becomes clear that while the current account balance has improved somewhat over the past decade, the private sector surpluses are still primarily dependent upon fiscal deficits.

Suggested Citation

  • Robert W. Parenteau, 2024. "Sector financial balances and Modern Monetary Theory," Chapters, in: Yeva Nersisyan & L. R. Wray (ed.), The Elgar Companion to Modern Money Theory, chapter 10, pages 133-150, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:18498_10
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    File URL: https://www.elgaronline.com/doi/10.4337/9781788972246.00017
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