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When the Interest Rate on the National Debt Is a Policy Variable (and “Printing Money” Does Not Apply)
Author(s) -
Fullwiler Scott
Publication year - 2020
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/pbaf.12249
Subject(s) - interest rate , economics , monetary policy , debt , monetary economics , variable (mathematics) , government debt , bond , government (linguistics) , credit channel , macroeconomics , monetarism , keynesian economics , inflation targeting , finance , mathematical analysis , linguistics , philosophy , mathematics
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.