When the Interest Rate on the National Debt is a Policy Variable (and “Printing Money” Does Not Apply)

23 Pages Posted: 7 Oct 2020

See all articles by Scott Fullwiler

Scott Fullwiler

University of Missouri at Kansas City

Date Written: Fall 2020

Abstract

Modern Monetary Theory (MMT) argues that the interest rate on the national debt for a monetary sovereign is a policy variable, not subject to whether bond markets “accept” or “reject” it. This paper defines measures of the components of the standard analysis of fiscal sustainability. It then methodically describes the Federal Reserve's operations relevant for understanding why interest rates on government debt in the United States have been and continue to be driven by monetary policy. A corollary that emerges—“printing money,” as economists usually understand it—is not applicable and has never been advocated by MMT.

Suggested Citation

Fullwiler, Scott, When the Interest Rate on the National Debt is a Policy Variable (and “Printing Money” Does Not Apply) (Fall 2020). Public Budgeting & Finance, Vol. 40, Issue 3, pp. 72-94, 2020, Available at SSRN: https://ssrn.com/abstract=3706214 or http://dx.doi.org/10.1111/pbaf.12249

Scott Fullwiler (Contact Author)

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

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