4. Fiscal Theory of Price Level and Modern Monetary Theory

Since around 2016, when it became difficult to achieve the price stability target of 2 percent through monetary policy alone, the fiscal theory of the price level (FTPL) and the modern monetary theory (MMT) have been attracting attention from the perspective of fiscal policy. Sims (2013) argues that fiscal and monetary policy consist of a single mechanism, and that fiscal policy is the sole determinant of price level. This is clearly different from the policy alliance between the Governments and the Bank of Japan. On the other hand, Kelton in her book “The Deficit Myth Modern Monetary Theory and the Birth of the People’s Economy” (2020) derives the assertion that “public debt is the wealth of the state.” It is contrary to the assertion that “the public debt is too big and will collapse sooner or later.”