Modern monetary theory and inflation – Part 1

Bill Mitchell – billy blog: Modern Monetary Theory … macroeconomic reality has the article Modern monetary theory and inflation – Part 1. Here is the introduction to the article.

It regularly comes up in the comments section that Modern Monetary Theory (MMT) lacks a concern for inflation. That somehow we ignore the inflation risk. One of the surprising aspects of the public debate as the current economic crisis unfolded was the repetitive concern that people had about inflation. There concerns echoed at the same time as the real economy in almost every nation collapsed, capacity utilisation rates were going down below 70 per cent and more in most nations and unemployment was sky-rocketing. But still the inflation anxiety was regularly being voiced. These commentators could not believe that rising budget deficits or a significant build-up of bank reserves do not inevitably cause inflation. The fact is that in voicing those concerns just tells me they never really understand how the monetary system operates. Further in suggesting the MMT lacks a concern for inflation those making these statements belie their own lack of research. Full employment and price stability is at the heart of MMT. The body of theory and policy applications that stem from that theory integrate the notion of a nominal anchor as a core element. That is what this blog is about.

I have never labored under the misconception that MMT was uninterested in controlling inflation. This article fully addresses, for those who haven’t seen it, the way MMT would control inflation under some circumstances. I am going to follow the link in the article to part 2 that addresses what to do about supply shocks as we experienced in 1974. I have been concerned that I have not seen anything written or talked about how MMT addresses this issue. I am glad to see that this missing component may just have been my lack of reading, not the lack of the issue being addressed.

You will see the term NAIRU in the article. Here is the explanation. Non-Accelerating Inflation Rate Of Unemployment – NAIRU

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