Depression risk a bad reason to jettison macroeconomic policy frameworks
SA's fiscal and monetary policies are being tested by the lockdown-induced economic contraction and concerns of a deeper depression that could follow it. Some argue that if we pursued modern monetary theory (MMT); if negative nominal interest rates were in place; if the government spent much more, preferably inclusive of saved pension funds; and all of the government’s debt issuance was bought by the central bank, the economic crisis would be averted. These critiques seek to solve a possible depression by jettisoning the very policies that have enabled the country to respond to the pandemic in the first place.
Only part of the rationale for these approaches is a fear of depression. Another part comes from longer-running antagonism to inflation targeting and the larger macroeconomic framework. However, the solutions offered aren’t as obvious as advertised. What these alternatives really do is trade the symmetry, flexibility and credibility of the current approaches for a fals...
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