Consolidation technique

The consolidation technique is a common theoretical and rhetorical simplification that helps elucidate how a monetarily sovereign government operates in the economy. Such technique fuses the central bank and the Treasury into an entity called “the federal government”. While this technique is commonly used in academia and policy discussions, Modern Money Theory (MMT) has fully explored its implications to shade light on the difference between public finance and private finance. In addition, after extensive studies of the financial practices of the central bank and Treasury of monetarily sovereign governments, MMT concludes that consolidation is a good first approximation of the way a central bank and a Treasury routinely work together regardless of the degree of independence of a central bank. This chapter presents the consolidation technique, its institutional underpinning and the implications for public finance and macroeconomics.