Wednesday, January 8, 2020

MMT And Price Level Determination — Brian Romanchuk

What determines the price level is a theoretical topic that pops up in Mosler's White Paper on Modern Monetary Theory (MMT - link to my discussion). Mosler's argument is that only MMT provides a proper understanding of price level determination. That is a strong claim, and difficult to assess. However, the discussion of price level determination is a distinctive part of MMT, and should receive greater prominence in discussion....
Bond Economics
MMT And Price Level Determination
Brian Romanchuk


Ralph Musgrave said...

What determines the price level is pretty simple.

Given excess demand, there will be inflation, i.e. prices rise. And given excess unemployment, prices will fall. That equals a rise in the real value of "private sector net financial assets" (i.e. base money and national debt). And that in turn ought to raise demand. The latter effect is known as the "Pigou effect".

Unfortunately, the RATE AT WHICH the latter effect works is far too slow, if indeed it works at all. Thus artificial stimulus, monetary and/or fiscal is far better than waiting for the Pigou effect to work.

Matt Franko said...


Take a piece of paper, write the word "demand!" on it, then, take it to a bank and let me know what they will give you for it...

AXEC / E.K-H said...

Brian Romanchuk

The macroeconomic price, aka the price level, is in the elementary case given by P=ρE W/R. This is the macroeconomic Law of Supply and Demand. Extensive explanations have been given elsewhere.

The price level follows logically from macrofoundations which are for a start defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Q≡C−Yw, S≡Yw−C)

The equation is composed of measurable variables and is therefore testable in principle, i.e. as an integral part of the complete and more complex price equation.

From Warren Mosler’s “operational core” follows NOTHING about the price level.#1

Egmont Kakarot-Handtke

#1 Why MMTers permanently explode myths of public deficits