nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒10‒04
sixteen papers chosen by
Karl Petrick
Western New England University

  1. Structural interdependence in monetary economics: theoretical assessment and policy implications By Cavalieri, Duccio
  2. Stagnation Traps By Luca Fornaro; Gianluca Benigno
  3. Time variation in the size of the multiplier: a Kalecki-Harrod approach By Mark Setterfield
  4. Doing evolution in economic geography By Andy Pike; Andrew Cumbers; Stuart Dawley; Danny MacKinnon; Robert McMaster
  5. Financialization, Housing Bubble, and the Great Recession: an interpretation based on a circuit of capital model By Fernando Rugitsky
  6. Can growth be green? By Ian Gough
  7. Growth and distribution in Brazil the 21st century: revisiting the wage-led versus profit-led debate By Laura Carvalho; Fernando Rugitsky
  8. What Drives Inequality? By Jon D. Wisman
  9. Path Dependency By Mark Setterfield
  10. THE POLITICAL ECONOMY OF LIBERAL DEMOCRACY By Mukand, Sharun; Rodrik, Dani author-workplace-Name: Harvard University
  11. Analyzing food price trends in the context of Engel?s law and the Prebisch-Singer hypothesis By Baffes,John; Etienne,Xiaoli Liao
  12. The Solow Growth Model Revisited. Introducing Keynesian Involuntary Unemployment By Riccardo Magnani
  13. Growth and Institutions in African Development, by Augustin K. Fosu By Simplice Asongu
  14. Human Capital Persistence and Development By Claudio Ferraz; Rodrigo Reis Soares; Rudi Rocha
  15. Paving Streets for the Poor: Experimental Analysis of Infrastructure Effects By Climent Quintana-Domeque; Marco Gonzalez-Navarro
  16. Inflation Dynamics and Monetary Policy : A speech at the Philip Gamble Memorial Lecture, University of Massachusetts, Amherst, Amherst, Massachusetts, September 24, 2015. By Yellen, Janet L.

  1. By: Cavalieri, Duccio
    Abstract: This is a theoretical analysis of structural interdependence in monetary economics. Some recent attempts to integrate money and finance in the theory of income and expenditure are initially examined. The Sraffian dichotomic interpretation of classical political economy is refused. A version of the classical surplus approach devoid of separating connotations is sketched, where flows and stocks are consistently reconciled and net financial wealth vanishes in the aggregate. Marx’s law of value is considered and set aside, as historically outdated by the advent of cognitive capitalism. New Consensus and New Neoclassical Synthesis macroeconomic models are criticized from an orthodox Keynesian point of view. Two further results emerge from the analysis: the illegitimacy of Marx’s asymmetrical treatment of constant and variable capital in the theory of value and the suggestion of a correct method for measuring the unit cost of real capital. Some reasons for reconsidering in this perspective the traditional approaches to monetary theory and policy are indicated.
    Keywords: monetary theory; monetary policy; fiscal policy; structural interdependence; Sraffian dichotomy; post-Keynesian economics; SFCA; MMT; MEV
    JEL: B22 E12 E44 E5 E52 M41
    Date: 2015–07–09
  2. By: Luca Fornaro (CREI); Gianluca Benigno (London School of Economics)
    Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to permanent, or very persistent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms' investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.
    Date: 2015
  3. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: A growing empirical literature demonstrates that the size of the expenditure multiplier varies over time, being both larger and consistently greater than one during periods of slow growth and/or recession. This paper contributes to the theory of the time-varying multiplier. It is shown that a combination of Kalecki’s dynamic theory of investment and Harrod’s “satisficing” approach to the investment decision furnish a theory in which the “crowding in” of investment expenditures following an initial demand stimulus (fiscal or otherwise) gives rise to an elevated expenditure multiplier during times of pronounced macroeconomic distress.
    Keywords: Multiplier, investment, crowding in, Kalecki, Harrod
    JEL: E11 E12 E22 E32
    Date: 2015–09
  4. By: Andy Pike; Andrew Cumbers; Stuart Dawley; Danny MacKinnon; Robert McMaster
    Abstract: Evolutionary approaches in economic geography face questions about the relationships between their concepts, theories, methods, politics and policy implications. Amidst the growing but unsettled consensus that evolutionary approaches should employ plural methodologies, the aims here are, first, to identify some of the difficult issues confronting those working with different frameworks. The concerns comprise: specifying and connecting research objects, subjects and levels; handling agency and context; engaging and integrating the quantitative and the qualitative; comparing cases; and, considering politics, policy and praxis. Second, the purpose is to articulate a distinctive geographical political economy approach, methods and illustrative examples in addressing these issues. Bringing different views of evolution in economic geography into dialogue and disagreement renders methodological pluralism a means towards improved understanding and explanation rather than an end in itself. Confronting such thorny matters needs to be embedded in our research practices and supported by greater openness, more and better substantiation of our conceptual, theoretical and empirical claims, enhanced critical reflection, and deeper engagement with politics, policy and praxis.
    Date: 2015–09
  5. By: Fernando Rugitsky
    Abstract: This paper offers an interpretation of the Great Recession based on Foley’s circuit of capital model. It is maintained that the contractionary effects of financialization were compensated by the housing bubble, from the mid-1990s to the early 2006. The busting of the bubble, then, was followed by the crisis. The model is calibrated with reference to quarterly data from the Flow of Funds Accounts, from 1960 to 1995. The interaction of financialization and the housing bubble, from 1996 to 2006 and from 2006 to 2009, is examined by simulating a baseline version of the model and imposing the observed shocks
    Keywords: circuit of capital; stock-flow consistent models; financialization; housing buble; Great Recession
    JEL: B51 E11 N12
    Date: 2015–09–15
  6. By: Ian Gough
    Abstract: This short article, based on a presentation at the London School of Economics, criticizes the common opinion that “green growth” offers a relatively painless – some even say pain-free – transition path for capitalist economies. After a brief summary of the daunting arithmetic entailed in combining fast decarbonization with continuing growth, the article advances 3 propositions. First, market-based carbon mitigation programs, such as carbon trading, cannot be sufficient and must be coupled with other policy pillars that foster transformative investment and widespread regulation. Second, a political economy of climate policy needs to draw on the lessons of comparative social policy research, which emphasizes the role of international pressures, interests, institutions, and ideas. Taking these into account gives a more realistic perspective on climate policy making in today’s neoliberal world. Third, more radical policies on both consumption and production are called for, to ensure that carbon mitigation is not pursued at the expense of equity and social welfare. These include policies to restrain high-carbon luxury consumption and a transition toward shorter paid working time. The conclusion is that a realistic program of green growth will be immensely difficult and entail radical political change.
    Keywords: climate change; green growth; social policy; political economy
    JEL: N0
    Date: 2015–07
  7. By: Laura Carvalho; Fernando Rugitsky
    Abstract: In the 2000s, several Latin American economies, and Brazil in particular, have engaged in relatively successful attempts to combine higher economic growth and lower income inequality. As the Brazilian economy slowed down in the last few years, the sustainability of this growth model has been put into question. After studying the impact of different redistributive policies (like minimum wage and income transfers) on the personal and functional distributions of income in Brazil, the paper discusses the response of aggregate consumption, investment and net exports – as well as of the economy’s productive structure and inflation rate – to the changes in income distribution itself and other relevant factors. The analysis allows us both to draw lessons to the Neo-Kaleckian literature on demand regimes, pointing towards the importance of some theoretical extensions, and to examine future prospects for the Brazilian economy.
    Keywords: demand regimes; functional and personal income distribution; Brazilian economy
    JEL: E11 E25 D31
    Date: 2015–09–21
  8. By: Jon D. Wisman
    Abstract: Over the past 40 years, inequality has exploded in the U.S. and significantly increased in virtually all nations. Why? The current debate typically identifies the causes as economic, due to some combination of technological change, globalization, inadequate education, demographics, and most recently, Piketty’s claim that it is the rate of return on capital exceeding the growth rate. But to the extent true, these are proximate causes. They all take place within a political framework in which they could in principle be neutralized. Indeed, this mistake is itself political. It masks the true cause of inequality and presents it as if natural, due to the forces of progress, just as in pre-modern times it was the will of gods. By examining three broad distributional changes in modern times, this article demonstrates the dynamics by which inequality is a political phenomenon through and through. It places special emphasis on the role played by ideology – politics’ most powerful instrument – in making inequality appear as necessary.
    Keywords: political power, distribution, legitimation, ideology
    JEL: D63 B00 Z18 N3
    Date: 2014
  9. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: Path dependency is defined, and three different specific concepts of path dependency – cumulative causation, lock in, and hysteresis – are analyzed. The relationships between path dependency and equilibrium, and path dependency and fundamental uncertainty are also discussed. Finally, a typology of dynamical systems is developed to clarify these relationships.
    Keywords: Path dependency, cumulative causation, lock in, hysteresis, equilibrium, fundamental uncertainty, resilience
    JEL: B41 C65
    Date: 2015–09
  10. By: Mukand, Sharun (University of Warwick); Rodrik, Dani author-workplace-Name: Harvard University
    Abstract: We distinguish between three sets of rights – property rights, political rights, and civil rights – and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table. We develop a formal model to sharpen the contrast between electoral and liberal democracies and highlight circumstances under which liberal democracy can emerge. We discuss informally the difference between social mobilizations sparked by industrialization and decolonization. Since the latter revolve around identity cleavages rather than class cleavages, they are less conducive to liberal politics.
    Keywords: civil rights, political rights
    Date: 2015
  11. By: Baffes,John; Etienne,Xiaoli Liao
    Abstract: Income growth in emerging economies has often been cited as a key driver of the past decade?s com-modity price boom?the longest and broadest boom since World War II. This paper shows that income has a negative and highly significant effect on real food commodity prices, a finding that is consistent with Engel?s Law and Kindleberger?s thesis, the predecessors of the Prebisch-Singer hypothe-sis. The paper also shows that, in the long run, income influences real food prices mainly through the manufacturing price channel (the deflator), hence weakening the view that income growth exerts strong upward pressure on food prices. Other (short-term) drivers of food prices include energy costs, inventories, and monetary conditions.
    Keywords: Commodities,Economic Theory&Research,Emerging Markets,Markets and Market Access,Climate Change Economics
    Date: 2015–09–28
  12. By: Riccardo Magnani (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - CNRS)
    Abstract: In this paper we extend the Solow growth model by introducing a simple mechanism which allows to determine involuntary unemployment explained by the weakness in aggregate demand. In our base model, we introduce a simple investment function and we find that an increase in aggregate demand (due to a reduction in the saving rate or to an increase in public expenditures) stimulates real GDP and reduces unemployment. Then, we modify the investment function in order to take into account the crowding-in/crowding-out effect on investments. This allows us to build a class of models which are between neoclassical supply-driven models and keynesian demand-driven models depending on the value of a key parameter that measures the degree of the crowding-in/crowding-out effect on investments and which lies between zero (for keynesian models) and one (for neoclassical models). Estimations on six OECD countries show that our key parameter lies between 0.6 and 0.8, implying that the fiscal multiplier is between 1 and 2, which is quite consistent with the empirical evidence.
    Date: 2015–09–22
  13. By: Simplice Asongu (Yaoundé/Cameroun)
    Abstract: Edited by Augustin K. Fosu Routledge Studies in Development Economics, 2015, pp. 393 (Hardcover). Reviewed by Simplice A. Asongu African Governance and Development Institute P.O. Box 8413, Yaoundé, Cameroon.
    Keywords: Growth; Institutions; Africa
    JEL: D70 H10 O10 O55
    Date: 2015–09
  14. By: Claudio Ferraz (Department of Economics PUC-Rio); Rodrigo Reis Soares (São Paulo School of Economics); Rudi Rocha (UFRJ - Instituto de Economia)
    Abstract: This paper examines the role of human capital persistence in explaining long-term development. We exploit variation induced by a state-sponsored settlement policy that attracted a pool of immigrants with higher levels of schooling to particular regions of Brazil in the late 19th and early 20th century. We show that municipalities that received settlements experienced increases in schooling that persisted over time. One century after the policy, localities that received state-sponsored settlements had higher levels of schooling and income per capita. We provide evidence that long-run effects were driven by persistently higher supply and use of educational inputs and shifts in the structure of occupations towards skill-intensive sectors.
    Date: 2015–06
  15. By: Climent Quintana-Domeque; Marco Gonzalez-Navarro
    Abstract: We provide the first experimental estimation of the effects of the supply of publicly financed urban infrastructure on property values. Using random allocation of first-time street asphalting of residential streets located in peripheral neighbourhoods in Mexico, we show that within two years of the intervention households are able to transform their increased property wealth into significantly larger rates of vehicle ownership, household appliances, and home improvements. Increased consumption is made possible via both credit use and less saving. A cost-benefit analysis indicates that the valuation of street asphalting as capitalized into property values is about as large as construction costs. We provide the first experimental estimation of the effects of the supply of publicly financed urban infrastructure on property values. Using random allocation of first-time street asphalting of residential streets located in peripheral neighbourhoods in Mexico, we show that within two years of the intervention households are able to transform their increased property wealth into significantly larger rates of vehicle ownership, household appliances, and home improvements. Increased consumption is made possible via both credit use and less saving. A cost-benefit analysis indicates that the valuation of street asphalting as capitalized into property values is about as large as construction costs.
    Keywords: development, infrastructure, credit use, wealth effect, randomized controlled trial
    JEL: C93 H41 O12 O18
    Date: 2015–09–10
  16. By: Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2015–09–24

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