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on Post Keynesian Economics |
| By: | L. Randall Wray |
| Abstract: | Even as the United States enjoys an economic expansion, there is an undercurrent of concern among economic analysts who follow financial markets. Some feel that the expansion of the credit derivatives markets poses the threat of a crisis similar to the Long-Term Capital Management debacle of 1998. Credit derivatives allow banks to share risks with holders of the derivatives, which are often mutual funds and other nonbank financial institutions. The Basel II accord, now being implemented in many countries, is hailed as a good form of protection against the risk of a series of bank failures of the type that might cause problems in the derivatives markets. Basel II represents a more sophisticated and complex version of the original Basel Accord of 1992, which set minimum capital ratios for various types of bank assets. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levppb:ppb_84&r=pke |
| By: | L. Randall Wray |
| Abstract: | In the mid to late 1980s, the U.S. economy simultaneously producedÑfor the first time in the postwar periodÑhuge federal budget deficits as well as large current account deficits, together known as the Òtwin deficitsÓ (Blecker 1992; Rock1991). This generated much debate and hand-wringing, most of which focused on supposed Òcrowding-outÓ effects (Wray 1989). Many claimed that the budgetdeficit was soaking up private saving, leaving too little for domestic investment, and that the ÒtwinÓ current account deficit was soaking up foreign saving. The result would be higher interest rates and thus lower economic growth, as domestic spendingÑespecially on business investment and real estate construction was depressed. Further, the government debt and foreign debt would burden future generations of Americans, who would have to make interest payments and eventually retire the debt. The promulgated solution was to promote domestic saving by cutting federal government spending and private consumption (Rock 1991; Council of Economic Advisers 2006). Many pointed to JapanÕs high personal saving rates as a model of the proper way to run an economy. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levypn:06-3&r=pke |
| By: | Stephanie Seguino; Caren A. Grown |
| Abstract: | This paper reviews evidence of the gender effects of globalization in developing economies. It then outlines a set of macroeconomic and trade policies to promote gender equity. The evidence suggests that while liberalization has expanded womenÕs access to employment, the long-term goal of transforming gender inequalities remains unmet and appears unattainable without state intervention in markets. This paper sets forth some general principles that can produce greater gender equality, premised on shifting from economies that are profit led and export oriented to those that are wage led and full-employment oriented. The framework is Kaleckian in its focus on the relationship between the gender distribution of income and macroeconomic outcomes. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_446&r=pke |
| By: | L. Randall Wray |
| Abstract: | MinskyÕs classification of fragility according to hedge, speculative, and Ponzi positions is well-known. He wrote about fragile positions of individual firms and of the economy as a whole, with the economy transitioning naturally from a robust financial structure (dominated by hedge units) to a fragile structure (dominated by speculative units). In most of MinskyÕs writing, he introduced government through its impact on the private sector with its spending and balance sheet operations as stabilizing forces (although he insisted that stability is ultimately destabilizing). On a few occasions he also analyzed the governmentÕs own balance sheet position. More rarely, Minsky extended his analysis to the open economy, examining the fragility of external debt positions. In these works, he analyzed the United States as the ÒworldÕs bankÓ and discussed the impact of various U.S. balance sheet positions on the rest of the world. This paper will carefully examine MinskyÕs position on these topics, and will offer an extension of MinskyÕs work. It will also examine the ÒsustainabilityÓ of the current Òtwin U.S. deficits.Ó |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_450&r=pke |
| By: | Eric Tymoigne |
| Abstract: | This is the first part of a three-part analysis of the Minskyan framework. Via an extensive review of the literature, this paper looks at 12 essential elements necessary to get a good understanding of Minsky's theory, and argues that those elements are central to comprehend how a monetary production economy works. This paper also shows how important these 12 elements are for the modeling of the Minskyan framework, and how the omission of one of them may be detrimental to an understanding of the essential dynamics that Minsky put forward: the Financial Instability Hypothesis. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_452&r=pke |
| By: | Eric Tymoigne |
| Abstract: | This is the second part of a three-part analysis of the Minskyan framework. It studies in detail the dynamics at the root of the endogenous financial weakening of capitalist economic systems. This part combines the properties presented in part I with other important concepts, such as the paradox of leverage and conventional expectations, to explain the Financial Instability Hypothesis. It is demonstrated that the signs of fragility are not always visible and that financial weakening can take many different (even though well-defined) routes. This is used to draw some conclusion about the appropriate way to test for this hypothesis and the limit of data. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_453&r=pke |
| By: | Eric Tymoigne |
| Abstract: | This is the last part of a three-part analysis of the Minskyan Framework. The paper presents a model that studies some of the features presented in Parts I and II. The model is Post-Keynesian in nature and puts a large emphasis on the role of conventions and the importance of the financial side. In doing so, it provides an innovative way to determine aggregate investment and to introduce nonlinearities in the modeling of MinskyÕs framework. This nonlinearity relies on the shifting property of conventions and the behavioral and psychological assumptions that they carry. Another specific characteristic of the model is that it is stock-flow consistent and explicitly takes into account the amortization of principal and refinancing loans. All of the modeling is done by using system dynamics, a flexible but rigorous modeling tool that gives the modeler a good understanding of the dynamics of complex models. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_455&r=pke |
| By: | Eric Tymoigne |
| Abstract: | The paper reviews the current literature on the subject in both the New Consensus and the Post Keynesian framework. It shows that both approaches give to central banks a wrong goal (inflation, distribution, curbing speculation, etc.) and a wrong instrument (interest rate rule). The paper claims that central banks should focus their attention on maintaining financial stability and leave other problems to public institutions better suited for this task. In doing so they should develop new tools of intervention and leave policy interest rates unchanged, close to or at zero percent. Central banks have been created to deal with financial matters (government finance and financial stability) and should stick to this. Central banks, then, have a large amount of improvements to make, both as reformers and as guides for the financial community. Their main instrument should be an analysis of the financial fragility of the financial system and of the different economic sectors. In this context, it is shown that the notion of ÒbubbleÓ does not matter for policy purposes, and that the current regulatory system lacks an institution that is able to deal effectively with solvency crisis. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_456&r=pke |
| By: | Marina Grusevaja |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:pot:vwldis:88&r=pke |