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on Post Keynesian Economics |
| By: | Thomas I. Palley |
| Abstract: | The theory of comparative advantage says that there are gains from trade for the global economy as a whole. In this second brief of a three-part study of the international economy (see also Public Policy Brief No. 85), Research Associate Thomas I. Palley observes that comparative advantage is driven by technology, which can be influenced by human action and policy. These associations have huge implications for the distribution of gains from trade and raise concerns about the future impact of international trade on the U.S. economy. Palley calls for strategically designed U.S. trade policy that can influence the nature of the global equilibrium and change the distribution of gains from trade. Recent works by Ralph Gomory and William Baumol and Paul Samuelson use pure trade theory to question the distribution of trade gains across countries over time and to challenge commonly held beliefs. These microeconomic and trade theorists identify a new issue: the dynamic evolution of comparative advantage and its impact on the distribution of gains from trade, which depends on changing global demand and supply conditions. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levppb:ppb_86&r=pke |
| By: | Dimitri B. Papadimitriou; Gennaro Zezza; Greg Hannsgen |
| Abstract: | In this new Strategic Analysis, we review what we believe is the most important economic policy issue facing policymakers in the United States and abroad: the prospect of a growth recession in the United States, linked to the imbalances in the U.S. current account, government, and private sector deficits. The current account balance, which is a negative addition to U.S. aggregate demand, is now likely to be above 6.5 percent of GDP and has been rising steadily for some time. The government balance has improved, again giving no stimulus to demand, which has therefore relied entirely on a large and growing private sector deficit. A rapidly cooling housing market is one of the signs showing that this growth path is likely to break down. We focus first on the current account deficit. Our analysis suggests that a necessary and sufficient condition to address this problem, without dire consequences for unemployment and growth, is that net export demand grow by a sufficient amount. For this to happen, three conditions need to be satisfied: foreign saving has to fall, especially in Europe and East Asia; U.S. saving has to rise; and some mechanism, such as a change in relative prices, should be put in place to help the previous two phenomena translate into an improvement in the U.S. balance of trade. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_nov_06&r=pke |
| By: | Korkut A. Erturk |
| Abstract: | The essential insight Minsky drew from Keynes was that optimistic expectations about the future create a margin, reflected in higher asset prices, which makes it possible for borrowers to access finance in the present. In other words, the capitalized expected future earnings work as the collateral against which firms can borrow in financial markets or from banks. But, then, the value of long-lived assets cannot be assessed on any firm basis, as they are highly sensitive to the degree of confidence that markets have about certain events and circumstances that will unfold in the future. This means that any sustained shortfall in economic performance in relation to the level of expectations that are already capitalized in asset prices may promote the view that asset prices are excessive. Once the view that asset prices are excessive takes hold in financial markets, higher asset prices cease to be a stimulant. Initially debt-led, the economy becomes debt-burdened. In this article, it is argued that KeynesÕs views on the alternation of the ÒbullÓ and ÒbearÓ sentiment and asset price speculation over the business cycle can explain two of MinskyÕs central propositions relative to business cycle turning points that have often been found less than fully persuasive: (1) that financial fragility increases gradually over the expansion, and, (2) that the interest rate sooner or later, increases setting off a downward spiral bringing the expansion to an end. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_474&r=pke |
| By: | Giuseppe Fontana |
| Abstract: | One of the greatest achievements of the modern ÒNew ConsensusÓ view in macroeconomics is the assertion of a nonquantity theoretic approach to monetary policy. Leading theorists and practitioners of this view have indeed rejected the quantity theory of money, and defended a return to the old Wicksellian idea of eliminating high levels of inflation by adjusting nominal interest rates to changes in the price level. This paper evaluates these recent developments in the theory and practice of monetary policy in terms of two basic questions: 1) What is the monetary policy instrument controlled by the central bank? and 2) Which macroeconomic variables are affected in the short and long run by monetary policy? |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_476&r=pke |
| By: | Alfonso Palacio-Vera |
| Abstract: | We present a simple theoretical framework that integrates the notion of the natural or neutral interest rate, liquidity preference theory, and the monetary policy practice by modern central banks. We claim that this theory explains the conditions under which an economy will experience an aggregate demand deficiency problem within a modern institutional setting. Contrary to the predictions of the New Consensus View in macroeconomics, the model suggests that ÒstructuralÓ factors such as a high saving rate and, especially, a low ÒnaturalÓ rate of growth increase the chances that an economy experiences an aggregate demand deficiency. Contrary to conventional wisdom, the model predicts that a fall in the NAIRU may lead to a rise in the natural interest rate, and vice versa. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_478&r=pke |
| By: | Jeffery Carpenter; Juan Camilo Cardenas |
| Abstract: | Explanations of poverty, growth and development more generally depend on the assumptions made about individual preferences and the willingness to engage in strategic behaviour. Economic experiments, especially those conducted in the field, have begun to paint a picture of economic agents in developing communities that is at some variance from the traditional portrait. We review this growing literature with an eye towards preference-related experiments conducted in the field. We rely on these studies, in addition to our own experiences in the field, to offer lessons on what development economists might learn from experiments. We conclude by sharing our thoughts on how to conduct experiments in the field, and then offer a few ideas for future research. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:mdl:mdlpap:0616&r=pke |
| By: | Alma Romero-Barrutieta; Eric V. Clifton |
| Abstract: | Empirical studies of the impact of geography and institutions on growth and development at the international level have become common place, but the high degree of abstraction at that level has led to calls for subnational studies. This paper examines these issues for a region of the United States, Appalachia, where the specific factors at play are identified and measured thus obviating the need for instrumental variable techniques. The evidence suggests that initial conditions, including both geography and institutions, are very important for economic development, having significant effects lasting hundreds of years. |
| Keywords: | Economic growth , poverty , institutions , geography , Appalachia , Economic growth , United States , Poverty , Income , |
| Date: | 2006–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/169&r=pke |