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on Post Keynesian Economics |
| By: | Philip Arestis; Ana Rosa González; Oscar Dejuan |
| Abstract: | This paper provides a theoretical explanation of the accumulation process, which accounts for the developments in the financial markets over the recent past. Specifically, our approach is focused on the presence of correlations between physical and financial investment, and how the latter could affect the former. In order to achieve this objective, two assets are considered: equities and bonds. This choice permits us to account for two extreme alternative possibilities: taking risk in the short run with unknown profits, or undertaking a commitment to the long run with known yields. This proposal also accounts for the influence of the cost of external finance and the impact of financial uncertainty, as proxied by the interest rate in the former case and the exchange rate in the latter case; thereby utilizing the Keynesian notion of conventions in the determination of investment. The model thus formulated is subsequently estimated by applying the difference GMM and the system GMM in a panel of 14 OECD countries from 1970 to 2010. |
| Keywords: | Accumulation; Financial Markets; Conventions; Uncertainty; Keynesian Economics |
| JEL: | B22 C23 E22 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_743&r=pke |
| By: | Ben Beachy |
| Abstract: | On the fifth anniversary of the beginning of the Great Recession, there is still no consensus on the lessons to be gleaned from the lingering crisis. What provoked the largest financial and economic collapse in decades? While the housing bubble and subprime mortgage lending boom provide clear proximate causes, skewed financial sector incentives, errant economic assumptions, and inequitable socioeconomic structures laid the groundwork for crisis. The complex web of underlying factors extends from a 1960s-era economic hypothesis to the deregulation of interstate banking to a shift in how Wall Street CEOs are paid. This paper traces that causal web for a generalist audience, summarizes how the financial crisis morphed into an economy-wide recession, and synthesizes proposals for how to prevent its recurrence. Such proposals are not limited to efforts to rein in Wall Street, as exemplified by the sweeping Dodd-Frank financial reform law, but also include initiatives to harness Wall Street’s vast resources for the needs of the real economy. Meanwhile, the crisis amplified calls to address crisisprone disequilibria in the U.S. economy, and to alter the study of economics itself. As the country continues to grapple with the economic fallout of financial meltdown, such proposals merit continued discussion. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:dae:daepap:12-06&r=pke |
| By: | Roger E.A. Farmer; Carine Nourry; Alain Venditti |
| Abstract: | Existing literature continues to be unable to offer a convincing explanation for the volatility of the stochastic discount factor in real world data. Our work provides such an explanation. We do not rely on frictions, market incompleteness or transactions costs of any kind. Instead, we modify a simple stochastic representative agent model by allowing for birth and death and by allowing for heterogeneity in agents' discount factors. We show that these two minor and realistic changes to the timeless Arrow-Debreu paradigm are sufficient to invalidate the implication that competitive financial markets efficiently allocate risk. Our work demonstrates that financial markets, by their very nature, cannot be Pareto efficient, except by chance. Although individuals in our model are rational; markets are not. |
| JEL: | E44 G01 G12 G14 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18647&r=pke |
| By: | Egmont Kakarot-Handtke |
| Abstract: | The analytical starting point determines the course of a theoretical investigation and, ultimately, the productiveness of an approach. The classics took production and accumulation as their point of departure; the neoclassics, exchange. Exchange implies behavioral assumptions and notions like rationality, optimization, and equilibrium. It is widely recognized that this approach has led into a cul-de-sac. To change a theory means to change its premises; or, in Keynes's words, to "throw over" the axioms. The present paper swaps the standard behavioral axioms for structural axioms and applies the latter to the analysis of the emergence of secondary markets from the flow part of the economy. Real and nominal residuals at first give rise to the accumulation of the stock of money and the stock of commodities. These stocks constitute the demand-and-supply side of secondary markets. The pricing in these markets is different from the pricing in the primary markets. Realized appreciation in the secondary markets is different from income or profit. To treat primary and secondary markets alike is therefore a category mistake. Vice versa, to take a set of objective propositions as the analytical starting point yields a comprehensive and consistent theory of market exchange and valuation. |
| Keywords: | New Framework of Concepts; Structure-Centric; Axiom Set; Residuals; Real and Monetary Stocks; Money; Credit; Financial Saving; Nonfinancial Saving; Net Worth; Financial Profit; Nonfinancial Profit; Retained Profit; Appreciation; Wealth |
| JEL: | D40 D50 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_741&r=pke |
| By: | Kakarot-Handtke, Egmont |
| Abstract: | Whether justified by the concrete circumstances or not, an economic crisis is, by simple association, taken as an implicit refutation of the invisible hand vision and the underlying theory. The fundamental heterodox critique locates the source of apparent theoretical difficulties at the level of methodology. Although acceptable in principle, this belief involves some actual misunderstandings with regard to the respective roles of deterministic laws and deductive reasoning. In order to clarify these, the present paper revisits some key episodes in the history of economic methodology. |
| Keywords: | financial crisis; intellectual crisis; power of ideas; material consistency; logical consistency; determinism; deductive method; failure of reason; common sense; domain of economics; Cournot’s Unfitness Proposition |
| JEL: | B10 B20 B41 |
| Date: | 2012–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43260&r=pke |
| By: | Timothy A. Wise |
| Abstract: | More than 40% of U.S. corn is now consumed in the production of ethanol. With the United States by far the world’s largest producer and exporter of corn, this represents an estimated 15% of global corn production. A recent survey by the National Academy of Sciences estimated that globally biofuels expansion accounted for 20-40% of the price increases seen in 2007-8, when prices of many food crops doubled. This had a dramatic impact on poor consumers and on net-food-importing developing countries. Expanding U.S. production and consumption of corn-based ethanol, which has been encouraged by a range of U.S. government subsidies and incentives, is considered one of the most important biofuel programs in putting upward pressure on food prices. Mexico now imports about one-third of its corn from the United States. Using conservative estimates from a study on U.S. ethanol expansion and corn prices, we estimate the direct impacts of U.S. ethanol expansion on Mexican corn import costs. We find that from 2006-2011, U.S. ethanol expansion cost Mexico about $1.5 billion due to ethanol-related corn price increases. Other methodologies suggest the costs could be more than twice as high, surpassing $3 billion over the period. |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:dae:daepap:12-01&r=pke |
| By: | Robert J. Barbera; Gerald Holtham |
| Abstract: | Financial market crises with the threat of a subsequent debt-deflation depression have occurred with increasing regularity in the United States from 1980 through the present. Almost reflexively, when confronted with such circumstances, US institutions and the policymakers that run them have responded in a fashion that has consistently thwarted debt-deflation-depression dynamics. It is true that these "remedies," as they succeeded, increasingly contributed to a moral hazard in US and global financial markets that culminated with the crisis that began in 2007. Nonetheless, the straightforward steps taken by established institutions enabled the United States to derail depression dynamics, while European 1930s-style austerity proved as ineffective as it was almost a century ago. Europe's, and specifically Germany's, steadfast refusal to embrace the US recipe has fostered mushrooming economic hardship on the continent. The situation is gruesome, and any serious student of economic history had to have known, given European policy commitments, that it was destined to turn out this way. It is easy to understand why misguided policies drove initial European responses. Economic theory has frowned on Keynes. Economic successes, especially in Germany, offered up the wrong lessons, and enduring angst about inflation was a major distraction. At the outset, the wrong medicine for the wrong disease was to be expected. What is much harder to fathom is why such a poisonous elixir continues to be proffered amid widespread evidence that the patient is dying. Deconstructing cognitive dissonance in other spheres provides an explanation. Not surprisingly, knowing what one wants to happen at home completely informs one’s claims concerning what will be good for one’s neighbors. In such a construct, the last best hope for Europe is ECB President Mario Draghi. He seems to be able to speak German and yet act European. |
| Keywords: | Austerity; Central Banks; Economic Stability; Euro; European Central Bank; Eurozone; Eurozone Debt Crisis; Financial Crisis; Financial Instability; Financial Markets; Fiscal Policy; Government Policy and Regulation; Hyman Minsky; Sovereign Debt; Stabilization; United States |
| JEL: | B20 B31 E62 E63 E65 F01 F36 G01 H63 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_742&r=pke |
| By: | Ive Marx (Centre for Social Policy, University of Antwerp); Brian Nolan (School of Applied Social Science, University College Dublin) |
| Abstract: | While in-work poverty is not a new problem, the degree of attention it is receiving in Europe is more recent, reflecting at least two concurrent sources of concern (Andreβ and Lohmann 2008; OECD 2008; European Foundation 2010; Fraser et al. 2011; Crettaz 2011; European Commission 2011). Deindustrialisation, intensifying international trade and skill-biased technological change are said to be threatening if not effectively eroding the (potential) earnings and living standards of some workers in advanced economies. Yet at the same time, policy at EU level and in many countries has become focused on increasing the number of people relying on earnings, and particularly on drawing into the labour market those with the weakest education and work history profiles. The Europe 2020 target of boosting employment rates to 75 per cent of the population aged 20 to 64 shows this drive to be undiminished. Sharply increased unemployment in some countries following on from the onset of the economic crisis has only served to increase the emphasis on getting people into jobs. In light of these trends, there would appear to be legitimate concern that larger sections of the workforce are being expected to rely on jobs that do not generate sufficient income to escape poverty.... |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:aia:ginidp:51&r=pke |
| By: | Lekha S. Chakraborty |
| Abstract: | Controlling for capital flows using the high-frequency macro data of a financially deregulated regime, this paper examines whether there is any evidence of the fiscal deficit determining the interest rate in the context of India. The period of analysis is FY 2006-07 (April) to FY 2011 (April). Contrary to the debates in policy circles, the paper finds that an increase in the fiscal deficit does not cause a rise in interest rates. Using the asymmetric vector autoregressive model, the paper establishes that the interest rate is affected by changes in the reserve currency, expected inflation, and volatility in capital flows, but not by the fiscal deficit. This result has significant policy implications for interest rate determination in India, especially since the central bank has cited the high fiscal deficit as the prime reason for leaving the rates unchanged in all of its recent policy announcements. The paper analyzes both long- and short-term interest rates to determine the occurrence of financial crowding out, and finds that the fiscal deficit does not appear to be causing either shorts and longs. However, a reverse causality is detected, from interest rates to deficits. |
| Keywords: | Fiscal Deficit; Asymmetric Vector Autoregressive Model; Financial Crowding Out |
| JEL: | C32 E62 H6 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_744&r=pke |
| By: | Anat Bracha; Elke U. Weber |
| Abstract: | In spite of large number of financial crises, often depicted as episodes of financial panic, the notion of panic in financial markets is not very well understood. Many have argued that in order to understand financial crises, and in particular panic events, we need to go beyond classic economic arguments. This paper is an effort in that direction, in which we attempt to give a psychological account of panic and of panic in financial markets in particular, by discussing uncertainty, the desire for predictability and control, the illusion of control, and confidence. We suggest how one might incorporate these psychological insights into existing economic models. |
| Keywords: | Financial crises |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbpp:12-7&r=pke |
| By: | Pasquale Tridico (dpt. Economia) |
| Abstract: | The objective of this paper is to show that the current global economic crisis in which also Italy fell in 2008 represents indeed for the Italian economy just the last step of a much longer declining path which started in the nineties or to be more precise in 1992-93. In particular, I argue, the reasons which explain the long Italian decline, and partly also the deeper recession today and the lack of recovery from the current crisis can be found in the past reforms of the labour market, and in particular in the labour flexibility introduced in the last 15 years, which had, along with other policies introduced in parallel, cumulative negative consequences on the inequality, on the consumption, on the aggregate demand, on the labour productivity and on the GDP dynamics. |
| Keywords: | Financial crisis; Labour market; EU Crisis management; Comparative studies |
| JEL: | G10 J10 H12 O57 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:ast:wpaper:0005&r=pke |