nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2014‒04‒18
eight papers chosen by
Karl Petrick
Western New England University

  1. Bank-based versus market-based financial systems: a critique of the dichotomy By Malcolm Sawyer
  2. Financial development, financialisation and economic growth By Malcolm Sawyer
  3. Fiscal consolidation: Dr Pangloss meets Mr Keynes By Miller, Marcus; Zhang, Lei
  4. Financialisation in the circuit By Marco Veronese Passarella; Malcolm Sawyer
  5. Theories of Financial Crises By Daniel Detzer; Hansjorg Herr
  6. What Is European Integration Really About? A Political Guide for Economists By Spolaore, Enrico
  7. What Does the 1930s’ Experience Tell Us about the Future of the Eurozone? By Crafts, Nicholas
  8. Working For the Few: Political Capture and Economic Inequality By Fuentes-Nieva, Ricardo; Galasso, V. Nicholas

  1. By: Malcolm Sawyer (University of Leeds)
    Abstract: The paper sets out different perspectives on the bank-based vs market-based typology of financial systems. It presents a general critique of the typology, paying particular attention to the ways in which the typology reflects a loanable funds approach, ignoring the roles of banks in the credit money creation process, and the neglect of different types of banks. It is argued that banks should be viewed as institutions engaged in market transactions and the equity markets as also institutions involved in markets.
    Keywords: bank-based financial system, market-based financial system
    JEL: G19 G20
    Date: 2014–01–20
  2. By: Malcolm Sawyer (University of Leeds)
    Abstract: The paper reviews the theoretical arguments which have been advanced on the relationships between economic growth and growth of the financial sector. This is followed by a similar discussion on financial repression and financial liberalisation. Growth of the financial sector and de-regulation are considered as two important features of financialisation. The differences between bank-based and market based financial systems are briefly explored as is the question of whether the financial sector is now too large. The paper is completed by overviews of the empirical results on the relationship between growth of the financial sector and economic growth and on financial liberalisation.
    Keywords: financial development, financial liberalisation, financial repression, financialisation
    JEL: G01 G18 G20
    Date: 2014–01–20
  3. By: Miller, Marcus (University of Warwick); Zhang, Lei (University of Warwick)
    Abstract: A simple dynamic framework is used to show how consolidation plans that are robust and effective at capacity output can be undermined by demand failure. If the market panics and interest rates rise, the process can indeed become dynamically unstable. Tightening fiscal policy to reassure financial markets can lead to a low level “consolidation trap”, however. Better that the Central Bank acts to keep interest rates low; and that fiscal consolidation efforts be state contingent – allowing room for economic stabilisation. The pro-cyclicality of fiscal policy could also be reduced if, as Shiller has argued, debt amortization were state contingent, being indexed to GDP. Debt; Deficits; Fiscal Consolidation; Economic Stabilisation
    Date: 2013
  4. By: Marco Veronese Passarella (University of Leeds); Malcolm Sawyer (University of Leeds)
    Abstract: The relationships between financial systems and the macroeconomy with emphasis on the saving—investment relationships and the nature of money are set out. A ‘circuitist’ framework is extended to reflect some major features of the era of financialisation since circa 1980
    Keywords: monetary circuit, financialisation, saving, investment
    JEL: E44 G20
    Date: 2014–01–20
  5. By: Daniel Detzer (Berlin School of Economics and Law, and Institute for International Political Economy Berlin (IPE)); Hansjorg Herr (Berlin School of Economics and Law, and Institute for International Political Economy Berlin (IPE))
    Abstract: This paper analyses financial crises from a theoretical point of view. For this it reviews what different schools of economic thought have to say about financial crises. It examines first the approaches that regard financial crises as a disturbing factor of a generally stable real economy (Wicksell, Hayek, Schumpeter, Fisher, and the early Keynes). Thereafter, approaches, where the dichotomy between the monetary and the real sphere is lifted are reviewed. Here in particular the later works of Keynes and the contributions of Minsky are of importance. Lastly, it is looked at the behavioural finance approaches. After having reviewed the different approaches it is examined, where those approaches have similarities and where they fruitfully can be combined. Based on this, we develop an own theoretical framework methodologically based on a Wicksellian cumulative process, however, overcoming the neoclassical dichotomy. The paper ends with some policy recommendations based on the developed theoretical framework.
    Keywords: Financial crisis, crisis theory, behavioral finance, Hayek, Keynes, Minsky, Schumpeter, Wicksell
    JEL: E12 E13 G01
    Date: 2014–02–15
  6. By: Spolaore, Enrico (Tufts University)
    Abstract: Europe’s monetary union is part of a broader process of integration that started in the aftermath of World War II. In this “political guide for economists” we look at the creation of the euro within the bigger picture of European integration. How and why were European institutions established? What are the goals and determinants of European Integration? What is European integration really about? We address these questions from a political-economy perspective, building on ideas and results from the economic literature on the formation of states and political unions. Specifically, we look at the motivations, assumptions, and limitations of the European strategy, initiated by Jean Monnet and his collaborators, of partially integrating policy functions in a few areas, with the expectation that more integration will follow in other areas, in a sort of chain reaction towards an “ever-closer union.” The euro with its current problems is a child of that strategy and its limits
    Keywords: European integration
    Date: 2013
  7. By: Crafts, Nicholas (University of Warwick)
    Abstract: If the Eurozone follows the precedent of the 1930s, it will not survive. The attractions of escaping from the gold standard then were massive and they point to a strategy of devalue and default for today’s crisis countries. A fully-federal Europe with a banking union and a fiscal union is the best solution to this problem but is politically infeasible. However, it may be possible to underpin the Euro by a ‘Bretton-Woods compromise’ that accepts a retreat from some aspects of deep economic integration since exit entails new risks of financial crisis that were not present eighty years ago.
    Keywords: economic disintegration; Eurozone; financial repression; gold standard; macroeconomic trilemma; political trilemma
    Date: 2013
  8. By: Fuentes-Nieva, Ricardo; Galasso, V. Nicholas
    Abstract: Economic inequality is rapidly increasing in the majority of countries. The wealth of the world is divided in two: almost half going to the richest one percent; the other half to the remaining 99 percent. The World Economic Forum has identified this as a major risk to human progress. Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people.
    Keywords: inequality, economic inequality, wealth inequality, income inequality, democracy,political representation
    JEL: F1 F5 H1 H23 H5 O1 O17
    Date: 2014–01–20

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