Deflation and Fiscal Deficits

In this study on the Japanese economy, the author focuses on three problems related to economic policy and presents their answers. The author analyzes (i) what mechanisms exist for fiscal policy and the price level, (ii) whether the MMT proposition that public deficits increase people's wealth and savings fits into the standard macro model, and (iii) whether Blanchard's assertion that fiscal deficits are net wealth in the US economy can be applied to Japanese economy as well. The propositions of Sims' FTPL, Kelton's MMT, Japan's Ricardian type argument, and the non-Ricardian type of government by Blanchard have been understood as independent economic perceptions, but they will be theoretically shown as a coherent story. Namely, this study presents a macroeconomic framework that includes the financial sector and derives Sims' proposition that fiscal policy can be the sole determinant of the price level. It also shows that MMT's claim that "budget deficits increase our wealth and collective savings" can inevitably hold within this framework. Furthermore, it presents a model that consistently explains that public debt leads to financial collapse but contributes to economic welfare.

Presents a macroeconomic framework in which fiscal policy is the determinant of prices level MMT's assertion "fiscal deficits increase our wealth " is derived from the standard macro-model The model explains how public debt contributes to economic welfare despite leading to financial collapse

Autorentext

Yoshikiyo Sakai is Professor Emeritus, Yokohama City University and Kanagawa University, Japan.

Inhalt

Circumstances of Questions and Theoretical Background.- Timeline of Economic Policies in Japan.- Structure of Quantitative and Qualitative Monetary Easing and Joint Statement with Government.- Fiscal Theory of Price Level and Modern Monetary Theory.- Answers to Questions 1 and 2: Financial System from Viewpoints of Payment.- Answer to Question 3: Crocodile Mouth Theory vs. Blanchard Assertion.- Conclusion.