nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2008‒03‒08
five papers chosen by
Karl Petrick
University of the West Indies

  1. Rediscovering Fiscal Policy Through Minskyan Eyes By Philip Arestis; Elisabetta De Antoni
  2. How To Solve The U.S. Housing Problem and Avoid A Recession: A Revived HOLC and RTC By Davidson, Paul
  3. Friedman’s Methodology: A Puzzle and A Proposal for Generating Useful Debates through Causal Comparisons (with a postscript on positive vs. normative theories) By Khan, Haider
  4. The End of Financial Repression? A Cross-Country Analysis of Investment By Panicos O. Demetriades; Gregory A. James; Kevin Lee
  5. The Economics and Psychology of Personality Traits By Borghans Lex; Lee Duckworth Angela; Heckman James J.; Weel Bas ter

  1. By: Philip Arestis; Elisabetta De Antoni
    Abstract: Recent developments in macroeconomic policy, both in terms of theory and practice, have elevated monetary policy while fiscal policy has been downgraded. The latter is rarely mentioned in policy discussion, apart from arguing to place limits on budget deficits and fiscal variables. This paper presents the opposite view of Hyman P. Minsky. Rejecting the orthodox assumptions of unbounded individual and collective rationality, Minsky places uncertainty and financial instability at the centre of his analysis. The limits of individual and collective rationality feed each other, generating deviation-amplifying mechanisms that make the economy unstable. The last one thus assumes a cyclical behaviour that drives it from the torrid summers of speculative booms to the gloomy winters of financial crises, debt deflations and deep depressions. Even if Minsky is generally considered as one of the main interpreters of Keynes, according to this work his economics is very different from Keynes’s one in terms both of business cycles and of growth. In comparison with the Keynesian tradition, according to Minsky fiscal policy is even more important and effective. Government intervention is not only necessary to reach and maintain full employment; it is also indispensable to contain capitalism’s instability and to avoid the disaster. The effect of fiscal policy is not only to underpin and stabilize aggregate demand, income and employment. It has also the task to protect the robustness of the financial system by stabilizing profits and by issuing government bonds. The opening up of the economy may increase its fragility, making fiscal policy even more important. The unprecedented growth of the domestic and international financial transactions, as well as the recent financial turmoil, confirm the validity of Minsky’s insights and make his views on fiscal policy even more noteworthy and fruitful.
    Keywords: Minsky, bounded rationality, business cycles, financial instability, fiscal policy.
    JEL: E12 E32 E42 E62
    Date: 2007
  2. By: Davidson, Paul
    Abstract: This paper exlains the cause of the sub prime market failure in the US and suggests policies to copy with the problem.
    Keywords: monetary policy; insolvency;
    JEL: D53 E00 E44 A11
    Date: 2008–01
  3. By: Khan, Haider
    Abstract: Milton Friedman’s “The Methodology of Positive Economies” is still one of the most widely read pieces on economic methodology. One reason for this might be Friedman’s attractive proposal that economists use theories and hypotheses as pragmatic devices to summarize data and make predictions over the relevant range of observations. Logically, this should lead to a fair minded comparison among many contending theories. However, Friedman's actual examples and discussion of these examples raise a puzzle. The field of comparison seems unduly narrow from the beginning. In my attempt to resolve this, I consider some logical and ontological problems for Friedman's position. I end up by suggesting a scientific realist approach to testing theories by causal comparisons over a wide field of contending theories.
    Keywords: Positive economics; normative economics; prediction; realism; scientific realism; causal comparisons; causal depth
    JEL: A13 B41
    Date: 2008–03
  4. By: Panicos O. Demetriades; Gregory A. James; Kevin Lee
    Abstract: We estimate a model of investment under financial restrains due to Demetriades and Devereux (2000), using total and private aggregate investment data from 38 high income and low income countries during 1972-2002. Our main findings for the overall sample are that (i) the US real interest rate is a robust determinant of total investment, suggesting that US monetary policy may have unintended global consequences; (ii) a term proxying domestic financial restraints is found to have an insignificant impact both on total and private investment. These findings are, however, somewhat less conclusive when we examine low income countries on their own, where financial restraints are found to have a negative and marginally significant effect on total investment.
    Keywords: Financial restraints; investment; dynamic panel data
    JEL: O16 G18 G28
    Date: 2008–02
  5. By: Borghans Lex; Lee Duckworth Angela; Heckman James J.; Weel Bas ter (ROA rm)
    Abstract: This paper explores the interface between personality psychology andeconomics. We examine the predictive power of personality and the stability ofpersonality traits over the life cycle. We develop simple analytical frameworksfor interpreting the evidence in personality psychology and suggest promisingavenues for future research.
    Keywords: education, training and the labour market;
    Date: 2008

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