Does Fiscal Policy Affect the Monetary Transmission Mechanism? A Monetary Theory of Production (MTP) Response to the New Consensus Macroeconomics (NCM) Perspective

Drawing on the contributions of Augusto Graziani to the so-called monetary theory of production, this article aims to show that an accommodative monetary policy—as defended in the new consensus macroeconomics theory and supported by current practice around the world—has the maximum effect in stimulating aggregate demand and income when it is implemented in conjunction with a coordinated discretionary fiscal policy that boosts the demand for and the supply of loans via the reduction of the liquidity risk and the insolvency risk. As a result, the potentially beneficial effects of the traditional Keynesian fiscal multiplier are significantly amplified.