nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2011‒05‒24
five papers chosen by
Karl Petrick
University of the West Indies

  1. "Was Keynes's Monetary Policy, a outrance in the Treatise, a Forerunnner of ZIRP and QE? Did He Change His Mind in the General Theory?" By Jan Kregel
  2. The making of heterodox microeconomics By Lee, Frederic
  3. Balance of Payments Constrained Growth Models: History and Overview By A. P. Thirlwall
  4. Portrait of the Economist as a Young Man: Raúl Prebisch’s evolving views on the business cycle and money, 1919-1949 By Esteban Pérez Caldentey and Matías Vernengo
  5. As Innovations Drive Economic Growth, Do they also Raise Well-Being? By Martin Binder; Ulrich Witt

  1. By: Jan Kregel
    Abstract: At the end of 1930, as the 1929 US stock market crash was starting to have an impact on the real economy in the form of falling commodity prices, falling output, and rising unemployment, John Maynard Keynes, in the concluding chapters of his Treatise on Money, launched a challenge to monetary authorities to take "deliberate and vigorous action" to reduce interest rates and reverse the crisis. He argues that until "extraordinary," "unorthodox" monetary policy action "has been taken along such lines as these and has failed, need we, in the light of the argument of this treatise, admit that the banking system can not, on this occasion, control the rate of investment, and, therefore, the level of prices." The "unorthodox" policies that Keynes recommends are a near-perfect description of the Japanese central bank's experiment with a zero interest rate policy (ZIRP) in the 1990s and the Federal Reserve's experiment with ZIRP, accompanied by quantitative easing (QE1 and QE2), during the recent crisis. These experiments may be considered a response to Keynes's challenge, and to provide a clear test of his belief in the power of monetary policy to counter financial crisis. That response would appear to be an unequivocal No.
    Date: 2011–05
  2. By: Lee, Frederic
    Abstract: This paper constitutes the first chapter in my work-in-progress manuscript, Microeconomic Theory: A Heterodox Approach. Because many heterodox feel that the only micro theory is mainstream micro, the paper starts with a brief rejection of mainstream theory. It then proceeds to give an overview of heterodox economic theory. The third section defines heterodox microeconomic theory and relates it to heterodox value theory. Since heterodox economic theory and particularly microeconomic theory is not already formed, it has to be created. Thus the fourth section of the paper delineates the heterodox methodology of theory creation, which includes critical realism and the method of grounded theory, and discusses various methodological issues such as data, case studies, mathematics and modeling, and econometrics. The following section deals with the historical character of heterodox economic theories; and the paper ends with a discussion about the making of heterodox microeconomic theory that will take place in the subsequent chapters of the book.
    Keywords: Heterodox; Microeconomics; Critical Realism; Grounded Theory
    JEL: B50 D00 B41
    Date: 2011–05–12
  3. By: A. P. Thirlwall
    Abstract: This paper surveys balance of payments constrained growth models from Thirlwall’s original contribution in 1979 to the latest tests of the model using cointegration techniques. Historical antecedents of the model are explored (e.g. the Harrod trade multiplier; dual gap analysis; Prebisch’s centre-periphery model), and various extensions of the model are outlined including: capital flows; interest payments on debt, and generalisation of the model to include many countries and many goods. All the empirical literature, using time series, panel and cross section data, is documented with discussion of the tests employed. The basic model that long run GDP growth can be approximated by the ratio of export growth to the income elasticity of demand for imports is remarkably robust. The relevance of the model is shown for the current discussion of global imbalances in the world economy.
    Keywords: Balance of Payments Constrained Growth; Harrod Trade Multiplier; North-South Models; Global Imbalances
    JEL: F02 F32 F43
    Date: 2011–05
  4. By: Esteban Pérez Caldentey and Matías Vernengo
    Abstract: This paper analyzes Raúl Prebisch’s less familiar contributions to economic theory, related to the business cycle, and heavily informed by the Argentinean experience. His views of the cycle emphasize the common nature of the cycle in the center and the periphery as one unified phenomenon. While his rejection of orthodoxy is less than complete, some elements of what would become a more Keynesian position are developed. In particular, a preoccupation with the management of the balance of payments and the need for capital controls as a macroeconomic management tool, considerably before Keynes and White’s plans led to the Bretton Woods agreement. In the process it is clear that Prebisch developed several ideas that are still relevant to understand cyclical fluctuations in the periphery, and became more concerned with the capacity of taking advantage of cyclical booms to maintain sustained economic growth.
    Keywords: Business Cycle, Macroeconomic Policy, History of Economic Thought JEL Codes: B31, E32, E65
    Date: 2011
  5. By: Martin Binder; Ulrich Witt
    Abstract: While there is little doubt that innovations drive economic growth, their effects on well-being are less clear. One reason for this are ambivalent effects of innovations on well-being that result from pecuniary and technological externalities of innovations, argued to be inevitably. Another major reason lies in the fact that, as a result of innovations, preferences can change over time. Under such conditions, a time-consistent measuring rod for changes in well-being is hard to construct. Existing conceptions of well-being are shown not yet to solve the problem in a way that provides an unambiguous answer to the question in the title.
    Keywords: innovations, growth, welfare, well-being, preference change Length 20 pages
    JEL: D63 I31 O00
    Date: 2011–05

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