nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2006‒07‒15
five papers chosen by
Karl Petrick
Leeds Metropolitan University

  1. The Spectre of Deflation: A Review of Empirical Evidence By Gregor W. Smith
  2. Wicksell at the Bank of Canada By Kevin Clinton
  3. The Politics of Institutional Renovation and Economic Upgrading: Lessons from the Argentine Wine Industry By Gerald Mc Dermott; ;
  4. The “New” Stability and Growth Pact: More Flexible, Less Stupid? By Rui Henrique Alves; Óscar Afonso
  5. Political Economy of Fiscal Institutions By Jürgen von Hagen

  1. By: Gregor W. Smith (Queen's University)
    Abstract: What explains the widespread fear of deflation? This paper reviews the history of thought, economic history, and empirical evidence on deflation, with a view to answering this question. It also outlines informally the main effects of deflation in applied monetary models. The main finding is that -- for both historical and contemporary deflations -- there are many open, empirical questions that could be answered using the tools economists use to study inflation and monetary policy more generally.
    Keywords: deflation
    JEL: E31
    Date: 2006–07
  2. By: Kevin Clinton (Queen's University)
    Abstract: Wicksell, writing around the start of the 20th century, outlined an approach to monetary policy strikingly similar to the modern approach, of which the Bank of Canada has been a pioneer. Its features include: the overriding objective of price stability (or low inflation); an interest rate instrument controlled by the rates on settlement balances at the central bank; and a policy rule under which the instrument varies in response to deviations from the objective. Wicksell’s natural rate of interest has resurfaced as the neutral rate in mainstream macroeconomic models; and his description of the inflation process has parallels in the modern Phillips curve. Moreover, in a mandate for price stability, one can find a logical basis for the independence and accountability of central banks. The paper tries to explain why Wicksell’s ideas fell by the wayside for a century, and describes how the Bank of Canada, by pragmatic steps in the 1990s, helped reinvent Wicksell, and install a neo-Wicksellian monetary policy.
    Keywords: Wicksell, central bank, monetary policy, Bank of Canada
    JEL: E42 E52 E58
    Date: 2006–06
  3. By: Gerald Mc Dermott; ;
    Abstract: Through a comparative, longitudinal analysis of the wine industry in two Argentine provinces, this article examines how different political approaches to reform shape the ability of societies to build new institutions for economic upgrading. The article finds that inherited structural factors per se can not easily explain the different solutions to this challenge. A better explanation focuses on how governments confront the dual challenge of redefining the boundary between the public and private domains and of recombining the socio-economic ties among relevant firms and their respective business associations. A “depoliticization” approach emphasizes the imposition of arm’s-length incentives by a powerful, insulated government, but appears to contribute little to institutional change and upgrading. A “participatory restructuring” approach promotes the creation of public-private institutions via adherence to two key principles: a) inclusion of a wide variety of relevant stakeholder groups and b) rules of deliberative governance that promote collective problem-solving. This latter approach appears to have the advantage of facilitating collaboration and knowledge creation among previously antagonistic groups, including government.
    Keywords: institutions, networks, upgrading, Latin America, industrial policy
    JEL: M13 F23 H4 L1 L5 O1 P16 D8
    Date: 2005–12–01
  4. By: Rui Henrique Alves (Faculdade de Economia do Porto, Universidade do Porto); Óscar Afonso (CEMPRE, Faculdade de Economia do Porto, Universidade do Porto)
    Abstract: Since the beginning of the European single currency project, the adoption of fiscal binding rules, restraining the use of the single policy instrument left for national authorities, has been challenged by many authors and politicians. The discussion has been rekindled in recent years, following a period of economic recession or stagnation in several Member-Countries and some criticisms linking the Stability and Growth Pact (SGP) to the general economic situation. Some of the questions raised by those who criticised the initial framework for fiscal discipline may have been taken into account in the recent revision of the SGP (March 2005), which followed the suspension of the Pact for Germany and France and eventually made the SGP more flexible and “less stupid”. In this paper, we evaluate the changes contained in the “new” SGP, by taking account of the properties for ideal fiscal rules put forward by Kopits and Symansky (1998) and comparing with some recently published studies on the same topic. The main result of our analysis points towards a clear increase in flexibility together with the probable emergence of new enforcement problems. In this context, an insufficient output in terms of fiscal discipline could arise, leading to the need for new improvements within the European framework for the definition and implementation of national fiscal policies.
    Keywords: EMU, SGP, Fiscal Rules, Fiscal Discipline
    JEL: H62 H63 H77
    Date: 2006–07
  5. By: Jürgen von Hagen (ZEI, University of Bonn, Indiana University, and CEPR)
    Abstract: We discuss two essential problems of the political economy of public finances: The principal agent problem between voters and elected politicians and the common pool problem arising from the fact that money drawn from a general tax fund is used to pay for policies targeting more or less narrow groups in society. Three institutional mechanisms exist to deal with these problems, ex-ante rules controlling the behavior of elected policy makers, electoral rules creating accountability of and competition among policy makers, and budgeting processes internalizing the common pool externality. We review recent theoretical and empirical research and discuss its implications for research and institutional design.
    Keywords: electoral systems, fiscal rules, budgeting processes
    JEL: H11 H61 H62
    Date: 2005–11

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