Exercising Economic Sovereignty in Today's Global Financial World: The Lessons from John Maynard Keynes

In this article, I argue that current macroeconomic models do not recognise the role that "global investors" play in determining the space for effective macroeconomic policies. These important players must be placed at the center of macroeconomic analysis if we are to understand how macroeconomic policies work in the global financial environment. The article describes the key characteristics of global investors, analyses their power to determine the value at which public sector liabilities (money and debt) are traded on international markets and how this power affects policy effectiveness. No country is truly sovereign in a globalised world and all governments are subject to an inter-temporal budget constraint that is endogenous to global investor decisions. The policy choices of countries in today's globalised financial environment would benefit from revisiting some of J. M, Keynes's teachings, considering his in-depth knowledge of global financial markets and how they affect economies of the countries.