nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2012‒12‒15
four papers chosen by
Karl Petrick
University of the West Indies

  1. Keynes’s employment function and the gratuitous Phillips curve disaster By Kakarot-Handtke, Egmont
  2. A budget for Europe's monetary union By Guntram B. Wolff
  3. Bridging the gap? Government subsidized lending and access to capital By Kristle Romero Cortés; Josh Lerner
  4. The Panic of 1907 By Ellis W. Tallman

  1. By: Kakarot-Handtke, Egmont
    Abstract: Keynes had a lot of plausible things to say about unemployment and its causes. His ‘mercurial mind’, though, relied on intuition which means that he could not prove his diverse opinions convincingly. This explains why Keynes’s ideas immediately invited bastardizations. One of them, the Phillips curve synthesis, proved to be fatal. This paper identifies Keynes’s undifferentiated employment function as weak spot. The structural employment function, on the other hand, works in inflationary and deflationary environments and supersedes the bastard Phillips curve. It will be rigorously demonstrated why there is no trade-off between price inflation and unemployment.
    Keywords: new framework of concepts; structure-centric; axiom set; Say’s regime; Keynes’s regime; market clearing; full employment; product price flexibility; intertemporal budget balancing; multiplier; trade-off; price inflation; wage inflation
    JEL: E12 E24
    Date: 2012–12–06
  2. By: Guntram B. Wolff
    Abstract: In a monetary union, national fiscal deficits are of limited help to counteract deep recessions; union-wide support is needed. A common euro-area budget (1) should provide a temporary but significant transfer of resources in case of large regional shocks, (2) would be an instrument to counteract severe recessions in the area as a whole, and (3) would ensure financial stability. The four main options for stabilisation of regional shocks to the euro area are: unemployment insurance, payments related to deviations of output from potential, the narrowing of large spreads, and discretionary spending. The common resource would need to be well-designed to be distributionally neutral, avoid free-riding behaviour and foster structural change while be of sufficient size to have an impact. Linking budget support to large deviations of output from potential appears to be the best option. A borrowing capacity equipped with a structural balanced budget rule could address area-wide shocks. It could serve as the fiscal backstop to the bank resolution authority. Resources amounting to 2 percent of euro-area GDP would be needed for stabilisation policy and financial stability.
    Date: 2012–12
  3. By: Kristle Romero Cortés; Josh Lerner
    Abstract: The consequences of providing public funds to financial institutions remain controversial. We examine the Community Development Financial Institution (CDFI) Fund’s impact on credit union activity, using hitherto little studied U.S. Treasury data. The CDFI Fund grants increase lending at credit unions by 3%. For every dollar awarded, 45 additional cents are loaned out to borrowers in the first year, and up to an additional $1.60 is loaned out within three years. Delinquent loan rates also increase slightly. Our panel results are supported by a broadband regression discontinuity analysis. Politics does not seem to play a role in allocating funding.
    Keywords: Credit unions ; Loans ; Capital
    Date: 2012
  4. By: Ellis W. Tallman
    Abstract: This paper summarizes the academic literature on the Panic of 1907 in the United States. Despite over 100 years of separation, research by financial economic historians continues to uncover important data and underexploited connections between institutions to improve present day understanding of a watershed economic event—one that preceded the successful movement to establish a central bank in the United States in 1913.
    Keywords: Financial crises ; Financial markets ; Bank liquidity
    Date: 2012

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