nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2016‒03‒29
nine papers chosen by
Karl Petrick
Western New England University

  1. When more flexibility yields more fragility : the microfoundations of keynesian aggregate unemployment By Andrea Roventini; Maria Enrica Virgillito; Manoela Carrera Pereira; Giovanni Dosi
  2. Aggregate Demand, Functional Finance and Secular Stagnation By Skott, Peter
  3. Do shadow banks create money? 'Financialisation' and the monetary circuit By Jo Michell
  4. Some Unpleasant Currency Devaluation Arithmetic in a Post-Keynesian Macromodel By Rafael Saulo Marques Ribeiro; John S. L. McCombie, Gilberto Tadeu Lima
  5. Growth, Exploitation and Class Inequalities By Galanis, Giorgos; Veneziani, Roberto; Yoshihara, Naoki
  6. How Successful Was the New Deal? The Microeconomic Impact of New Deal Spending and Lending Policies in the 1930s By Price V. Fishback
  7. Restoring Rational Choice: The Challenge of Consumer Financial Regulation By John Y. Campbell
  8. What Made Great Britain so Great? From the Fiscal-Military State to the First Industrial Revolution By Jordan Roulleau-Pasdeloup
  9. The Theory of Economic Development of J.A. Schumpeter: Key Features By BAZHAL, IURII

  1. By: Andrea Roventini (Laboratory of Economics and Management (Pisa) (LEM)); Maria Enrica Virgillito; Manoela Carrera Pereira (Universidade Estadua del Campinas); Giovanni Dosi (Laboratory of Economics and Management)
    Abstract: Wages are an element of cost crucially affecting the competitiveness of individual rms. But the wage bill is also a crucial element of aggregate demand. Hence it could be that more “flexible"and fluid labour markets, while allowing for faster inter-firm reallocation of labour, may also render the whole economic system more fragile, more prone to recession, more volatile. In this work we investigate some conditions under which such a conjecture applies. The paper presents an agent-based model that investigates the effects of two “archetypes of capitalism", in terms of regimes of labour governance - defined by the mechanisms of wage determination, firing, labour protection and productivity gains sharing - upon (i) labour market regularities and (ii) macroeconomic dynamics (long-term rates of growth, GDP fluctuations, unemployment rates, inequality, etc..). The model is built upon the \Keynes meets Schumpeter" family of models (Dosi et al.,2010), explicitly incorporating different microfounded labour market regimes. Our results show that seemingly more rigid labour markets and labour relations are conducive to coordination successes with higher and smoother growth.
    Keywords: Involuntary unemployment; Aggregate demand; Wage determination; Labour market regimes; Keynesian coordination failures; Agent based models
    JEL: C63 E2 E12 E24
    Date: 2016–03
  2. By: Skott, Peter (Department of Economics, University of Massachusetts, Amherst)
    Abstract: This paper makes three main points. Fiscal policy, first, may be needed in the long run to maintain full employment and avoid secular stagnation. If fiscal policy is used in this way, second, the long-run debt ratio depends (i) inversely on the rate of growth, (ii) inversely on government consumption, and (iii) directly on the degree of inequality. The analysis, third, suggests that policies and policy debates have been misguided. The recent rediscovery of ’secular stagnation’ by Summers and others should be welcomed, but the suggested theoretical redirection is unclear and does not go far enough.
    Keywords: functional finance, zero lower bound, liquidity trap, fiscal policy, secular stagnation, austerity, public debt.
    JEL: E62 E22
    Date: 2016
  3. By: Jo Michell (University of the West of England)
    Abstract: The rise of the shadow banking system is viewed throught the lens of Graziani's Monetary Theory of Production. Graziani's categories of 'initial finance' and 'final finance' are used to analyse the new forms of credit created in the shadow banking sector. It is argued that the accumulation of leverage in the shadow banking system and the creation of credit money by the traditional banking sector are symbiotic processes. While Graziani's triangular debtor-bank-creditor relationship remains central, the circuit operates in a perverse form in which household debt is stored on the balance sheets of shadow banks, allowing the banking system to break the historical connection between money creation and productive activity.
    Keywords: monetary circuit, endogenous money, shadow banking, financialization, Graziani
    JEL: E12 E40 G21
    Date: 2016–03
  4. By: Rafael Saulo Marques Ribeiro; John S. L. McCombie, Gilberto Tadeu Lima
    Abstract: Conventional view argues that devaluation increases the price competitiveness of domestic goods, thus allowing the economy to achieve a higher level of economic activity. However, these theoretical treatments largely neglect two important effects following devaluation: (i) the inflationary impact on the price of imported intermediate inputs which raises the prime costs of firms and deteriorates partially or totally their price competitiveness; and (ii) the redistribution of income from wages to profits which affects ambiguously the aggregate demand as workers and capitalists have different propensities to save. New structuralist economists have explored these stylised facts neglected by the orthodox literature and, by and large, conclude that devaluation has contractionary effects on growth and positive effects on the external balance. Given that empirical evidence on the correlation between devaluation and growth is quite mixed, we develop a more general Keynesian-Kaleckian model that takes into account both opposing views in order to analyse the net impact of currency depreciation on the short-run growth rate and the current account. We demonstrate that this impact can go either way, depending on several conditions such as the type of growth regime, that is, wage-led or profit-led, and the degree of international price competitiveness of domestic goods.
    Keywords: Currency devaluation; price competitiveness; wage-led and profit-led growth.
    JEL: O40 O33 E25
    Date: 2016–03–02
  5. By: Galanis, Giorgos; Veneziani, Roberto; Yoshihara, Naoki
    Abstract: This paper provides a formal dynamic analysis of exploitation, class inequalities and profits. A stylised model of a capitalist economy with two classes - workers and capitalists - is considered which extends Roemer [26, 27]. First, a dynamic generalisation of a key Marxian insight is provided by proving that the profitability of capitalist production is synonimous with the existence of exploitation. Second, it is shown that, in a competitive environment, asset inequalities are fundamental for the emergence of exploitation, but they are not sufficient for its persistence, both in equilibria with accumulation and growth, and, perhaps more surprisingly, in stationary intertemporal equilibrium paths. Finally, it is shown that labour-saving technical progress may yield persistent exploitation by ensuring the persistent abundance of labour.
    Keywords: Dynamics, accumulation, exploitation, classes
    JEL: E11 D51 D63 C61 B24
    Date: 2016–02
  6. By: Price V. Fishback
    Abstract: The New Deal during the 1930s was arguably the largest peace-time expansion in federal government activity in American history. Until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of New Deal programs. Over the past decade scholars have developed new panel databases for counties, cities, and states and then used panel data methods on them to examine the examine the impact of New Deal spending and lending policies for the major New Deal programs. In most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy. Many of the studies also use instrumental variable methods to control for endogeneity. The studies find that public works and relief spending had state income multipliers of around one, increased consumption activity, attracted internal migration, reduced crime rates, and lowered several types of mortality. The farm programs typically aided large farm owners but eliminated opportunities for share croppers, tenants, and farm workers. The Home Owners’ Loan Corporation’s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers. The Reconstruction Finance Corporation’s loans to banks and railroads appear to have had little positive impact,although the banks were aided when the RFC took ownership stakes.
    JEL: H5 N42
    Date: 2016–01
  7. By: John Y. Campbell
    Abstract: This lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively. The lecture argues that financial ignorance is pervasive and unsurprising given the complexity of modern financial products, and that it contributes meaningfully to the evolution of wealth inequality. The lecture uses a stylized model to discuss the welfare economics of paternalistic intervention in financial markets, and discusses several specific examples including asset allocation in retirement savings, fees for unsecured short-term borrowing, and reverse mortgages.
    JEL: D12 D18 G28
    Date: 2016–02
  8. By: Jordan Roulleau-Pasdeloup
    Abstract: Recent research in economic history casts doubts on the role played by good economic institutions in Great Britain after the 1688 Glorious Revolution. What undoubtedly emerged from the latter is a strong Fiscal-Military state under the influence of a Parliament dominated by Whigs. After presenting related empirical evidence, I develop a parsimonious model to understand how the influence of a strong military apparel on international trade can foster the implementation of more productive technologies. When this is the case, development by one country can foster de-industrialization for its trading partners, as has been the case historically in India during the 19th century.
    Keywords: Industrial Revolution; Productivity; Conflict; Imperialism
    JEL: N13 O14 O41 F51 F54
    Date: 2016–02
    Abstract: This paper comprises translation into English the preface of Iurii Bazhal to the first Ukrainian edition of Joseph Schumpeter’s famous fundamental book “The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle” that was translated in Ukrainian and published in 2011 in commemoration of its 100th anniversary. The paper reveals the contemporary significance of this classical book as the challenger on replacing the neoclassical approaches in capacity to become the mainstream of modern economic theory. It is shown the Schumpeter’s approach gives a new vision of driving forces for economic development where a crucial conceptual place belongs to category the innovation. Second part of the paper reviews modern Neo-Schumpeterian approaches which have substantiated the importance of the structural innovation technological change of national economy for economic development. The government must permanently analyze a compliance of the actual production structure in the country with the current and future technological paradigms.
    Keywords: Schumpeter, Dynamics of economic development, Innovation theory, Technological paradigm, Innovation policy
    JEL: B31 O11 O30 O40
    Date: 2016–02–25

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