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The Trade-off between Inflation and Unemployment in an MMT World: An Open Economy Perspective

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  • Emilio Carnevali
  • Matteo Deleidi

Abstract

This paper is focused on Modern Monetary Theory's (MMT) treatment of inflation from an open economy perspective. It analyzes how the inflation process is explained within the MMT framework and provides empirical evidence in support of this vision. However, it also makes use of a stock-flow consistent (open economy) model to underline some limits of the theory when it is applied in the context of a non-US (relatively) open economy with a flexible exchange rate regime. The model challenges the contention made by MMTers that measures such as the job guarantee program can achieve full employment without facing an inflation-unemployment trade-off.

Suggested Citation

  • Emilio Carnevali & Matteo Deleidi, 2020. "The Trade-off between Inflation and Unemployment in an MMT World: An Open Economy Perspective," Economics Working Paper Archive wp_973, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_973
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    References listed on IDEAS

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    1. Roberto Veneziani & Luca Zamparelli & Michalis Nikiforos & Gennaro Zezza, 2017. "Stock-Flow Consistent Macroeconomic Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1204-1239, December.
    2. Lavoie, Marc, 1996. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(3), pages 275-300, August.
    3. Eric Tymoigne & L. Randall Wray, 2013. "Modern Money Theory 101: A Reply to Critics," Economics Working Paper Archive wp_778, Levy Economics Institute.
    4. Matteo Deleidi & Enrico Sergio Levrero, 2019. "The money creation process: A theoretical and empirical analysis for the United States," Metroeconomica, Wiley Blackwell, vol. 70(4), pages 552-586, November.
    5. Knapp, Georg Friedrich, 1924. "The State Theory of Money," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number knapp1924.
    6. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
    7. Kilian,Lutz & Lütkepohl,Helmut, 2018. "Structural Vector Autoregressive Analysis," Cambridge Books, Cambridge University Press, number 9781107196575, January.
    8. Louis-Philippe Rochon, 1999. "Credit, Money and Production," Books, Edward Elgar Publishing, number 1565.
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    Cited by:

    1. Giuliano Toshiro Yajima, 2021. "The Employer of Last Resort Scheme and the Energy Transition: A Stock-Flow Consistent Analysis," Economics Working Paper Archive wp_995, Levy Economics Institute.
    2. Summa, Ricardo de Figueiredo, 2022. "Alternative uses of functional finance: Lerner, MMT and the Sraffiansh," IPE Working Papers 175/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. Françoise Drumetz & Christian Pfister, 2021. "The Meaning of MMT," Working papers 833, Banque de France.

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    More about this item

    Keywords

    Central Banking; Post-Keynesian; Open Economy Model; Modern Money Theory;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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