The trade-off between inflation and unemployment in an ‘MMT world’: an open-economy perspective

Carnevali, Emilio and Deleidi, Matteo (2022) The trade-off between inflation and unemployment in an ‘MMT world’: an open-economy perspective. European Journal of Economics and Economic Policies: Intervention. pp. 1-35. ISSN 2052-7764 (In Press)

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Abstract

This paper is focused on modern monetary theory’s (MMT) treatment of inflation from an open-economy perspective. It analyses how the inflation process is explained within the MMT framework and provides empirical evidence in support of this vision. However, it also makes use of a stock–flow consistent open-economy model to underline some limits of the theory when it is applied in the context of a non-US (relatively) open economy with a flexible exchange-rate regime. The model challenges the contention made by MMT-ers that measures such as the job guarantee programme can achieve full employment without facing an inflation–unemployment trade-off.

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