The paper models the interaction between risk taking in the financial sector and central bank policy for the case of pure illiquidity risk. It is shown that, when bad states are highly unlikely, public provision of liquidity may improve the allocation, even though it encourages more risk taking...

When agents are liquidity constrained, two options exist - sell assets or borrow. We compare the allocations arising in two economies: in one, agents can sell government (outside) bonds and in the other they can borrow by issuing (inside) bonds. All transactions are voluntary, implying no...

To the extent that they exert a critical influence on the macroeconomic environment, monetary and exchange rate policies (MERP) are relevant for development. However, the analytical economic literature often sees nominal variables as being irrelevant for the real economy, while the multiplicity...

make several claims about the inadequacy and fallacy of modern money theory (MMT) and conclude that MMT is nothing more than a political manifesto; there is no theoretical and empirical foundation beneath it. The present paper addresses this last point by focusing on the fiscal and monetary...

This article examines the misconceptions about modern money theory (MMT) put forward by . The author divides her critique into three categories. First, the Drumetz/Pfister article erroneously indicates that MMT focuses exclusively on the means-of-payment function of money, that it considers...

We reply to the critics who contributed the other papers in the same issue of this journal. In the first part of the article, we indicate those remarks addressed to us, which we deem inappropriate to answer. The second part deals with the remarks we find useful to answer, which relate to money,...

This article considers the current economic situation from the lens of modern money theory (MMT) and expresses a policy response rooted in post-Keynesian theory and empirical data for the US and the euro area. First, MMT supports targeted deficit spending to promote production. Increasing...