nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒08‒30
eleven papers chosen by
Karl Petrick
Western New England University

  1. Mark-up Pricing, Sectoral Dynamics, and the Traverse Process in a Two-Sector Kaleckian Economy By Shinya Fujita
  2. Credit, Indebtedness, and Speculation in the Marxian Paradigm: A Reassessment By Ramirez, Miguel D.
  3. Sraffa and ecological economics: review of the literature By Yoann Verger
  4. Directed Technical Change and Capital Deepening: A Reconsideration of Kaldor’s Technical Progress Function By Schlicht, Ekkehart
  5. Culture and Institutions By Alesina, Alberto F; Giuliano, Paola
  6. Towards a General Theory of Deep Downturns By Joseph E. Stiglitz
  7. A Critique of Modern Money Theory and the Disequilibrium Dynamics of Banking and Government Finance By Tianhao Zhi
  8. Through the Looking Glass: A WARPed View of Real Exchange Rate History By Douglas L. Campbell
  9. The Changing Face of Financial Development By Panicos O. Demetriades; Peter L. Rousseau
  10. The Intrinsic Instability of Financial Markets By Sabiou Inoua
  11. On the Need for a Replication Journal By Zimmermann, Christian

  1. By: Shinya Fujita
    Abstract: Kaleckian models, which study the relation between functional income distribution and demand formation, have focused on how macro-level distribution affects macro-level performance. In the real economy, however, labour–management negotiations are held at the industry level and thus the relation between sectoral distribution and sectoral/macroeconomic performance should be considered. This study presents a two-sector Kaleckian model with intermediate inputs and investigates how a distributive change in one sector affects sectoral/macroeconomic capacity utilization and capital accumulation. The results of the presented comparative static analysis and traverse analysis demonstrate that one sector’s change in the mark-up rate shifts each sector’s rate of capacity utilization in the opposite direction, while the impact of one sector’s change in the mark-up rate on performance differs by sector. The analyses also demonstrate that the effect of a change in the mark-up rate on capital accumulation depends on the firm’s animal spirits.
    Keywords: Two-sector model, Mark-up pricing, Traverse analysis
    JEL: E12 E22 O41
    Date: 2015–08
  2. By: Ramirez, Miguel D. (Trinity College)
    Abstract: This paper argues that, in Chapters XXIX and XXX of Volume III of Capital, Marx develops an incisive conceptual framework in which excessive credit creation, indebtedness, and speculation play a critical and growing role in the reproduction of social capital on an extended basis; however, given the decentralized and anarchic nature of capitalist production, it does so in a highly erratic and contradictory manner which only postpones the inevitable day of reckoning. The paper also draws important parallels between Marx's analysis of debt-fuelled crises and the events leading up to the subprime debacle of 2007-08. Finally, the paper contends that had Marx lived to re-write Vols. II and III, he would have explicitly connected the expanding role of credit [which he associated with the development of capitalism] to a significant reduction in the turnover period of capital, thereby boosting the rate of surplus-value, and countering in a highly erratic and contradictory manner, the fall in the rate of profit. The growing role of credit has been ignored in the Marxian literature as an important counteracting factor to the law of the declining rate of profit. It is not mentioned at all by Marx in his famous Chp. XIV, Vol. III of Capital where he discusses other important counteracting forces, nor by Engels [in this particular context] who edited both Vols. II and III.
    JEL: B10 B14 B24
    Date: 2014–07
  3. By: Yoann Verger (REEDS - REEDS - Centre international de Recherches en Economie écologique, Eco-innovation et ingénierie du Développement Soutenable - UVSQ - Université Versailles Saint-Quentin-en-Yvelines)
    Abstract: References to Sraffa and to the neo-Ricardian school is something quite customary in ecological economics. By looking at contributions in this area since the beginning of ecological economics and at contributions on environmental problem from the neo-Ricardian school, we see that a connection between both school still has to be made. This connection should be articulated around the initial aim of Sraffa: to develop a new paradigm, competing against the neoclassical one. Only then it will be possible to develop a real eco-Sraffian approach able to pursue the analysis of the sustainability of the economic system. This review of the literature is divided in three sections. Section 1 describes the part of the literature engaged in the “valuation of nature” debate; section 2 the works of researchers trying to develop a neo-Ricardian approach of ecological conflicts; and section 3 several works trying to use the neo-Ricardian knowledge in the analysis of physical interdependence between processes, in particular for the assessment of CO2 emissions. In each of these last sections, works are presented in a (more or less) chronological way.
    Date: 2015–07–31
  4. By: Schlicht, Ekkehart
    Abstract: This note proposes a growth model that is derived from the standard Solow growth model by replacing the neoclassical production function with Kaldor’s technical progress function while maintaining a marginalist theory of factor prices in the spirit suggested by von Weizsäcker (1966, 1966b). The hybrid model so obtained accounts for balanced growth in a way that appears less arbitrary than the Solow model, especially because it directly accounts for Harrod neutral technical change, without any need for further assumptions.
    Keywords: directed technical change; directed technological change; bias in innovation; technical progress function; neoclassical production function; Harrod neutrality; Hicks neutrality; Cambridge theory of distribution; marginal productivity theory; Kaldor; Kennedy; von Weizsäcker; Solow model
    JEL: O30 O40 E12 E13 E25 B59 B31
    Date: 2015–06–19
  5. By: Alesina, Alberto F; Giuliano, Paola
    Abstract: A growing body of empirical work measuring different types of cultural traits has shown that culture matters for a variety of economic outcomes. This paper focuses on one specific aspect of the relevance of culture: its relationship to institutions. We review work with a theoretical, empirical, and historical bent to assess the presence of a two-way causal effect between culture and institutions.
    Keywords: culture; institutions
    JEL: P16 Z1
    Date: 2015–08
  6. By: Joseph E. Stiglitz
    Abstract: This paper, an extension of the Presidential Address to the International Economic Association, evaluates alternative strands of macro-economics in terms of the three basic questions posed by deep downturns: What is the source of large perturbations? How can we explain the magnitude of volatility? How do we explain persistence? The paper argues that while real business cycles and New Keynesian theories with nominal rigidities may help explain certain historical episodes, alternative strands of New Keynesian economics focusing on financial market imperfections, credit, and real rigidities provides a more convincing interpretation of deep downturns, such as the Great Depression and the Great Recession, giving a more plausible explanation of the origins of downturns, their depth and duration. Since excessive credit expansions have preceded many deep downturns, particularly important is an understanding of finance, the credit creation process and banking, which in a modern economy are markedly different from the way envisioned in more traditional models.
    JEL: D59 D90 E20 E21 E30 E32 E44 E49 E50 E52 E60 F41 G01
    Date: 2015–08
  7. By: Tianhao Zhi (Finance Discipline Group, UTS Business School, University of Technology, Sydney)
    Abstract: The Modern Money Theory, originated from the seminal work of Knapp (1905) that established the “chartalism school of monetary theory” and later on, synthesized by so-called “neo-chartalists” such as Wray (2012), is a descriptive economic theory that examines the procedures and consequences of using government-issued tokens as the unit of money. Despite its high relevance in today's policy arena that demands a thorough understanding over the modern fiat monetary system, MMT is generally not well-received by mainstream academics due to some of its radical claims. In an experimental and preliminary manner, this paper proposes a set of disequilibrium models that aims to take a further investigation over the balance sheet effects of those transactions discussed by MMT from a dynamic perspective. We contend that some of the claims made by MMT are fallacious due to its omission of dynamic and behavioural aspects. The framework proposed in this paper would also be useful for future research from a dynamic MMT perspective.
    Keywords: Modern Money Theory (MMT); endogenous money; interbank market; fiscal policy; disequilibrium dynamics
    JEL: E12 E52 E62 G21
    Date: 2015–08–01
  8. By: Douglas L. Campbell (New Economic School (NES))
    Abstract: Commonly used trade-weighted real exchange rate indices are computed as indices-of-indices, and thus do not adequately account for growth in trade with developing countries. Weighted Average Relative Price (WARP) indices solve this problem but do not control for productivity differences, as developing countries are observed to have lower price levels via the Penn Effect. I remedy these problems in two ways. First I propose a Penn Effect productivity adjustment to Weighted Average Relative Price indices (P-WARP). Secondly, I introduce a Weighted Average Relative Unit Labor Cost index (WARULC) for manufacturing and show that this measure does a much better job predicting trade imbalances and declines in manufacturing employment than the IMF’s Relative ULC measure created as an index-of-indices. The new series reveal that for many countries currently mired in liquidity traps, relative prices reached historic highs heading into the financial crisis of 2008. I document that in 2002 – during the surprisingly sudden collapse in US manufacturing – US relative prices had not been that high relative to trading partners since the worst year of the Great Depression.
    Keywords: Real Exchange Rate Indices, Relative Unit Labor Cost Indices, Weighted Average Relative Prices, Balassa-Samuelson, Trading Partner Substitution Bias
    JEL: F10 F31 N70 C43
    Date: 2015–08
  9. By: Panicos O. Demetriades; Peter L. Rousseau
    Abstract: We provide evidence from a large number of countries which demonstrates the changing nature of the finance-growth nexus. Specifically, we show that financial depth is no longer a significant determinant of long-run growth. Instead we find evidence to suggest that certain financial reforms have sizeable growth effects, which can be positive or negative depending on how well banks are regulated and supervised.
  10. By: Sabiou Inoua
    Abstract: In this paper we explain the wild fluctuations of financial prices from the intrinsic amplifying feedback of speculative supply and demand. Formally, we show that an asset return follows a multiplicative random growth with exogenous input, which is well-known to be a generic power-law generating process, and which could thus easily explain the well-established power-law distribution of returns, and other related variables. Moreover, the theory we develop here is a general framework where competing ideas can be discussed in a unified way. The dominant random walk model, for instance, is easily derived in this framework if we superimpose market clearing (central to neoclassical economics). It corresponds to the case where the feedback in price dynamics is ignored in favor of the external input, namely the random inflow of news from the real economy.
    Date: 2015–08
  11. By: Zimmermann, Christian (Federal Reserve Bank of St. Louis)
    Abstract: There is very little replication of research in economics, particularly compared with other sciences. This paper argues that there is a dire need for studies that replicate research, that their scarcity is due to poor or negative rewards for replicators, and that this could be improved with a journal that exclusively publishes replication studies. I then discuss how such a journal could be organized, in particular in the face of some negative rewards some replication studies may elicit.
    JEL: A1 B4
    Date: 2015–08–07

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