nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2013‒09‒13
six papers chosen by
Karl Petrick
Western New England University

  1. A Macroeconometric Assessment of Minsky’s Financial Instability Hypothesis By Matthew Greenwood-Nimmo; Artur Tarassow
  2. Military Expenditure, Economic Growth and Heterogeneity By J Paul Dunne; Nan Tian
  3. Impact of Renewable Energy Policy and Use on Innovation: A Literature Review By Felix Groba; Barbara Breitschopf
  4. The Trade Agreement Embarrassment, Second Version By Wilfred J. Ethier
  5. Aid's Incomplete Trial: reconsidering the aid-growth paradigm in the macro aid effectiveness literature. By Hansen, Marc
  6. Making Growth Green and Inclusive: The Case of Cambodia By Essam Yassin Mohammed; Shannon Wang; Gary Kawaguchi

  1. By: Matthew Greenwood-Nimmo (University of Melbourne); Artur Tarassow (Universität Hamburg (University of Hamburg))
    Abstract: The Financial Instability Hypothesis associated with Hyman Minsky has profound implications for the conduct of monetary policy in modern capitalist economies. At its core is the proposition that the central bank may contribute to the financial fragility of leveraged firms in its pursuit of inflation-targeting interest rate policies. This paper develops a small macroeconomic model incorporating many of the salient features of a Minskyan economy. The imposition of the resulting theoretical restrictions in a CVAR model provides support for Minsky’s main proposition that interest rate innovations can drive a wedge between the cash-inflows of firms and their debt-servicing obligations. The paper concludes that the implementation of countercyclical capital requirements can provide monetary policymakers with additional policy instruments that can be used to cool overheated sectors without recourse to the ‘blunt instrument’ of interest rate policy.
    Keywords: Monetary Policy, Inflation Targeting, Financial Instability Hypothesis, Cointegrating VAR, Asset Price Cycles
    JEL: C32 C51 E32 E52
    Date: 2013–09
  2. By: J Paul Dunne (SALDRU, School of Economics, University of Cape Town); Nan Tian (DPRU, School of Economics, University of Cape Town)
    Abstract: This paper examines the impact of military expenditure on economic growth on a large balanced panel, using an exogenous growth model and dynamic panel data methods for 106 countries over the period 1988-2010. A major focus of the paper is to consider the possibility group heterogeneity and non-linearity. Having estimated the model for all of the countries in the panel and finding that military burden has a negative effect on growth in the short and long run, the panel is broken down into various groupings based upon a range of potentially relevant factors and the robustness of the results is evaluated. The factors considered are different levels of income, conflict experience, natural resources abundance, openness and aid. The estimates for the different groups are remarkably consistent with those for the whole panel, providing strong support for the argument that military spending has adverse effects on growth. There are, however, some intriguing results that suggest that for certain types of countries military spending has no significant effect on growth.
    Keywords: Military expenditure; economic growth; conflict; development
    JEL: O11 H56
    Date: 2013
  3. By: Felix Groba; Barbara Breitschopf
    Abstract: Technological changes in renewable energy technologies play an important role in the context of climate change as they contribute to a reduction of technology costs and lead to an increasing market penetration of emission reducing technologies. This paper provides a comprehensive literature review highlighting numerous motivations and necessities underlying the introduction of renewable energy policies. Starting with a brief overview on the induced innovation hypothesis, we show that policy intervention has been an effective tool to change relative prices, thus, incentivizing innovation, but that also various influencing factors are at play. We show that the literature agrees on the need for specific renewable energy policies in order to overcome concomitant market failures and barrier. We highlight that technology specific policies are generally understood as necessary complements to environmental non-technology specific policies in order to generate <br /> <br /> adequate demand in energy markets. However, in that respect, we outline the ongoing debate on the effectiveness of different technology specific policies on the demand-pull side and the role of technology-push policies. Additionally we provide a summary on methodological approaches to measure policy efforts and technological change respecting different impact levels and stages within the technological change process. Finally, by focusing on international competitiveness and technology cost we highlight two aspects of the effects renewable technology innovation and respective policy support.
    JEL: N70 O31 O32 O57
    Date: 2013
  4. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: The dominant academic literature about trade agreements maintains that they are only about national terms-of-trade manipulation and not at all about purely political concerns. Non-academic economists, commentators, and diplomats by contrast think that trade agreements are all about political concerns. There are two substantive and important distinctions between the two views. i Practitioners maintain that policymakers care virtually not at all about the terms of trade or about trade-tax revenue ii Practitioners, unlike academics, maintain that trade-agreement negotiations themselves change the underlying political economy. Observation of actual trade policy measures, though not conclusive, suggests that the practitioners are right and that the academics are wrong.
    Keywords: Multilateralism, Standard Academic Model, Practitioners’ Conventional Wisdom, terms of trade, political economy
    JEL: F10 F13
    Date: 2013–05–27
  5. By: Hansen, Marc
    Abstract: The Macroeconomic Aid Effectiveness Literature (Macro AEL) has had a resounding effect both within the academic community and within the policy arena where its policy recommendations carry substantial weight. Although the empirical aspect of this literature has received substantial scrutiny, the fundamental practice of assessing the effectiveness of aid by measurement against its impact on macroeconomic growth, referred to here as the Aid-Growth Paradigm, has escaped a similar fate. Consequently this paper will focus on an analysis of the theoretical foundations upon which the empirically dominated Aid-Growth Paradigm is constructed and show that the lack of consensus that plagues the Macro-AEL could be a symptom of the underlying underdeveloped theoretical framework. Through an analysis of the theoretical growth models and the implicit assumptions on the causal channels connecting aid and growth this paper illustrates that the Aid-Growth Paradigm suffers from two correlated oversimplifications. The first is the implicit assumption that the only causal channel that connects aid to growth is simply and directly through consumption and investment and the second is the reduction of the purpose of aid, namely development, to the promotion of macroeconomic growth. A more comprehensive approach, Rigorous Impact Evaluation, is then outlined based on the shortcomings of the Aid-Growth Paradigm that will allow a more multidimensional and exhaustive evaluation of aid’s effectiveness.
    Keywords: Aid effectiveness; Aid-growth paradigm; Rigorous Impact Evaluation
    Date: 2013
  6. By: Essam Yassin Mohammed; Shannon Wang; Gary Kawaguchi
    Abstract: Developing countries have collectively displayed relatively high growth rates in the last decade. Although large disparities still persist in standards of living, low and middle income countries averaged economic growth of 6.2% between 2000 and 2008, pulling 325 million people out of poverty (World Bank, 2010). Global growth has been accompanied by environmental degradation and in some cases there are growing numbers of people still living in poverty. Key questions for development planning today in countries include: Can developing countries strike a balance between economic growth, societal well-being and environmental protection? Can inclusive, green growth be a way forward? This report presents a case study on Cambodia designed to answer these questions. The case study draws on several sources of information to compile a “snapshot” of the situation today. In particular, qualitative information was gathered through a two-day, multi-stakeholder workshop and through bilateral interviews conducted with relevant actors from both public and private sectors. It also draws on relevant literature to present a balanced picture of the state of play on green growth in Cambodia.
    Date: 2013–08–12

This nep-pke issue is ©2013 by Karl Petrick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.