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on Post Keynesian Economics |
| By: | Thomas I Palley |
| Abstract: | The Federal Reserve has recently activated its newly acquired powers to pay interest on reserves of depository institutions. The Fed maintains its new policy increases economic efficiency and intends it to play a lead role in the exit from quantitative easing. This paper argues it is a bad policy that (1) has a deflationary bias; (2) is costly to taxpayers and that cost will increase as normal conditions return; and (3) establishes institutional lock-in that obstructs desirable changes to regulatory policy. The paper recommends repealing the Fed’s power to pay interest on bank reserves. Second, the Fed should repeal regulation Q that prohibits payment of interest on demand deposits. Third, the Fed should immediately implement an alternative system of asset based reserve requirements (liquidity ratios) that will improve monetary control and can help exit quantitative easing at no cost to the public purse. Now is the optimal time for this change. Lastly, the paper argues the new policy of paying interest on reserves reveals the troubling political economy governing the actions of the Federal Reserve and policy recommendations of the economics profession. |
| Keywords: | Interest on reserves, asset based reserve requirements, liquidity ratios |
| JEL: | E40 E42 E43 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp221&r=pke |
| By: | Lilia Costabile |
| Abstract: | In this Working Paper, PERI Research Associate Lilia Costabile explores the potential causal links running from our international monetary system to global imbalances, and from these to the crisis. She asks whether the global imbalances contribute to the current crisis, whether these imbalances are, in turn, favored by, or rooted in, the current organization of the international monetary system, and whether a Keynesian monetary system reformed might cut some of the causes of global crises at their roots. Answering these with three qualified ‘yeses,’ Costabile considers possible remedies and considers some alternative interpretations of the global crisis. |
| Keywords: | Key currencies, Keynes Plan, Global imbalances, Global crisis, International monetary system |
| JEL: | E12 F33 F41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp220&r=pke |
| By: | Philip R. P. Coelho (Department of Economics, Ball State University); James E. McClure (Department of Economics, Ball State University) |
| Abstract: | We quantify the increasing use of complex mathematics and show that the increase is unique to economics in the social sciences. Over half a century ago Donald F. Gordon hypothesized that mathematics was most likely to be useful in manipulating long chains of relationships, but these were the cases where the theory was least likely to valid. Time particularly bedevils the long chains because the ceteris paribus assumption requires the stability of all links. We find that the rate of hypothesis testing in articles citing mathematically complex articles is less than two percent, and summarize a variety of tests and other evidence supporting the Gordon hypothesis. We suggest that a major factor in the rise in mathematical complexity may be the decline in comments, replies, and rejoinders debating earlier publications; the decline has been rapid as editors have become increasingly “hostile” toward perspectives other than the ones they had previously published. We conclude by emphasizing that: 1) prominent journals in economics are devoting more space to mathematically complex articles despite their inconsequential operational harvest; 2) both the “appropriate” balance between mathematical complexity and operationalism, and the relative merits of “stylized facts” versus observational reality should be considered as a factor in editorial decision-making; finally 3) the vital importance of academic debate that addresses empirical verification, the appropriateness of model formulation, and the crucial matters of history and circumstance which are the measures of all research in the social sciences. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bsu:wpaper:201006&r=pke |