nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2008‒12‒07
four papers chosen by
Karl Petrick
University of the West Indies

  1. Some instability puzzles in Kaleckian models of growth and distribution: A critical survey By Eckhard Hein; Marc Lavoie; Till van Treeck
  2. "Excess Capital and Liquidity Management" By Jan Toporowski
  3. "Minsky and Economic Policy A Minskyan Analysis of the Subprime Crisis" By Luisa Fernandez
  4. Coping with Complexity. Keynes and International Economic Relations in the Aftermath of WWI By Anna M. Carabelli; Mario A. Cedrini

  1. By: Eckhard Hein (IMK at the Hans Boeckler Foundation and Carl von Ossietzky University Oldenburg, Germany); Marc Lavoie (University of Ottawa); Till van Treeck (IMK at the Hans Boeckler Foundation)
    Abstract: We tackle the issue of the possible instability of the Kaleckian distribution and growth model and the consequences for the endogeneity of the equilibrium rate of capacity utilization and for the paradox of thrift and the paradox of costs. Distinguishing between Keynesian and Harrodian instability, we review various mechanisms that have been proposed to tame Harrodian instability while bringing back the rate of utilization to its normal rate. We find that the mechanisms that have been suggested are far from being convincing. We thus review some approaches arguing that the adjustment towards a predetermined normal rate should not be expected at all, either because the normal rate reacts to the actual rate, or because of other constraints on the behaviour of entrepreneurs. We conclude that Kaleckian models are more flexible than their Harrodian and Marxian critics suppose when attacking the simple textbook version.
    Keywords: Kaleckian models, distribution, investment function, stability, utilization rate.
    JEL: E12 E20 O41
    Date: 2008
  2. By: Jan Toporowski
    Abstract: These notes present a new approach to corporate finance, one in which financing is not determined by prospective income streams but by financing opportunities, liquidity considerations, and prospective capital gains. This approach substantially modifies the traditional view of high interest rates as a discouragement to speculation; the Keynesian and Post-Keynesian theory of liquidity preference as the opportunity cost of investment; and the notion of the liquidity premium as a factor in determining the rate of interest on longer-term maturities.
    Date: 2008–11
  3. By: Luisa Fernandez
    Abstract: The paper uses Minsky’s financial instability hypothesis as an analytical framework for understanding the subprime mortgage crisis and for introducing adequate reforms to restore economic stability. We argue that the subprime crisis has structural origins that extend far beyond the housing and financial markets. We further argue that rising inequality since the 1980s formed the breeding ground for the current financial markets meltdown. What we observe today is only the manifestation of the ingenuity of the market in taking advantage of moneymaking opportunities, regardless of the consequences. The so-called "democratization of homeownership" rapidly turned into record-high delinquencies and foreclosures. The sudden turn in market expectations led investors and banks to reevaluate their portfolios, which brought about a credit crunch and widespread economic instability. The Federal Reserve Bank's intervention came too late and failed to usher in adequate regulation. Finally, the paper argues that a true democratization of homeownership is only possible through job creation and income-generation programs, rather than through exotic mortgage schemes.
    Date: 2008–11
  4. By: Anna M. Carabelli; Mario A. Cedrini (SEMEQ Department - Faculty of Economics - University of Eastern Piedmont)
    Abstract: In the attempt to deepen the understanding of Keynes's thought as an international macroeconomist, we explore the hypothesis of consistency between his general methodological approach to the economic material and his way of reasoning about international economic relations as shaped by WWI. We argue that the methodology of "The Economic Consequences of the Peace" reflects Keynes's attempt to cope with the attributes of the complexity characterizing the European settlement for the post-war period, and particularly 1) organic interdependence among variables at play, 2) irreducible dilemmas and situations of conflict, as well as 3) the need for external, public assistance to overcome the impasse and promote a "shared responsibilities" approach to the imbalances. Striking similarities appearing with the method of Keynes's economic diplomacy in the Forties call for further research in this sense.
    Keywords: Keynes; complexity; international economic relations
    JEL: B31 F02 B41
    Date: 2008–10

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