nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2016‒04‒04
eight papers chosen by
Karl Petrick
Western New England University

  1. Price flexibility and full employment: barking up the wrong (neoclassical) tree By Roy H Grieve
  2. "Japan's Liquidity Trap" By Tanweer Akram
  3. The determinants of banking crises: Further evidence By Peña, Guillermo
  4. Using Computer Simulators for Teaching Macroeconomics at the Undergraduate Level By Angelov, Aleks; Vasilev, Aleksandar
  5. What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery? By Alan S. Blinder
  6. Crime, the Criminal Justice System, and Socioeconomic Inequality By Lofstrom, Magnus; Raphael, Steven
  7. The Impact of Entrepreneurship on Knowledge Economy in Africa By Asongu, Simplice; Tchamyou, Vanessa
  8. The Public and Private Benefits from Organic Farming in Pakistan By Muhammad Iftikhar ul Husnain; Muhammad Khan

  1. By: Roy H Grieve (Department of Economics, University of Strathclyde)
    Abstract: This paper (a revised version of Strathclyde Paper 2004-07) questions the thesis (again in fashion) that price flexibility ensures full employment. (See most standard macro textbooks.) We make the point that explanation of unemployment in terms of price/wage stickiness typified much pre-Keynesian analysis, but not Keynes’s theory of involuntary unemployment. Under uncertainty - an essential aspect of the Keynes conception - no set of prices consistent with full employment may actually exist: if so, price inflexibility is not the critical obstacle to the attainment of full employment. Finally, with respect to current use of the AD/AS model, we note that once-rejected ideas have returned to the mainstream and that the strong arguments against attribution of necessarily beneficent effects to price and wage flexibility, which ought to be well-known, seem now to be forgotten.
    Keywords: price adjustment - the rate of iterest, wages, the price level, classical and Keynesian perspectives, "counting equations and unknowns", the ADAS model
    JEL: B13 B22
    Date: 2016–03
  2. By: Tanweer Akram
    Abstract: Japan has experienced stagnation, deflation, and low interest rates for decades. It is caught in a liquidity trap. This paper examines Japan's liquidity trap in light of the structure and performance of the country's economy since the onset of stagnation. It also analyzes the country's liquidity trap in terms of the different strands in the theoretical literature. It is argued that insights from a Keynesian perspective are still quite relevant. The Keynesian perspective is useful not just for understanding Japan's liquidity trap but also for formulating and implementing policies that can overcome the liquidity trap and foster renewed economic growth and prosperity. Paul Krugman (1998a, b) and Ben Bernanke (2000; 2002) identify low inflation and deflation risks as the cause of a liquidity trap. Hence, they advocate a credible commitment by the central bank to sustained monetary easing as the key to reigniting inflation, creating an exit from a liquidity trap through low interest rates and quantitative easing. In contrast, for John Maynard Keynes (1936; reissued 2007) the possibility of a liquidity trap arises from a sharp rise in investors' liquidity preference and the fear of capital losses due to uncertainty about the direction of interest rates. His analysis calls for an integrated strategy for overcoming a liquidity trap. This strategy consists of vigorous fiscal policy and employment creation to induce a higher expected marginal efficiency of capital, while the central bank stabilizes the yield curve and reduces interest rate volatility to mitigate investors' expectations of capital loss. In light of Japan's experience, Keynes's analysis and proposal for generating effective demand might well be a more appropriate remedy for the country's liquidity trap.
    Keywords: Liquidity Trap; Japan; Monetary Policy; Interest Rates
    JEL: E02 E40 E43 E50 E52 E58 E60
    Date: 2016–03
  3. By: Peña, Guillermo
    Abstract: This paper employs a new dataset of 36 EU and OECD countries for the period 1961–2012 to test the importance of economic inequality in banking crises and to find new determinants of them. We estimated a panel logit model with population-averaged results, capturing the most relevant crisis determinants in the literature. By analyzing the impact of inequality on the risk of a banking crisis, we found a new transmission channel of inequality to a financial recession via deficit and obtained a significant and robust positive impact of inequality on the bank crisis probability. We also found evidence that distance to USA, France and Japan decreases the likelihood of a financial crisis. Finally, and contrary to the theory, we found a new determinant that increases the likelihood of a crisis: the accumulated experience of VAT.
    Keywords: Banking Crisis, Inequality, Geographical Distance, VAT experience, Post-Keynesian Economics
    JEL: E12 G01 H25 H62 I32
    Date: 2016–03–03
  4. By: Angelov, Aleks; Vasilev, Aleksandar
    Abstract: The integration of technology in the educational process is becoming increasingly important for improving the 21st century student’s understanding and retention of academic material. Being able to readily apply the theory covered in class and to automatically receive immediate feedback is invaluable. And with gamification now permeating into nearly every area of our lives, computer games are proving to be an effective way to successfully engage any audience. Presently, there are only a few freely available macroeconomic simulators on the Internet which are suitable for undergraduate students. The two most prominent ones are the European Central Bank’s €conomia and the Chair the Fed game. But both of them focus solely on monetary policy. Thus, there is no educational simulator that allows students to examine the effects of fiscal policy. This is particularly problematic since Bulgaria and several other countries in the region, which are not part of the Eurozone, operate under a currency board, meaning that they do not have much control over their monetary policy, so the emphasis there is mainly on conducting fiscal policy. Hence, we developed the “Keynesian Macroeconomic Simulator of Fiscal Policy”.
    Keywords: simulators,fiscal policy
    Date: 2016–02–09
  5. By: Alan S. Blinder (Princeton University)
    Abstract: This paper comes in three parts. Part 1 reviews a few pertinent facts about the stunning economic events that have occurred in the United States (and elsewhere) since 2007. I choose these particular facts from among many for their relevance to the rest of the paper. The next two parts take up, first, some of the key lessons that we professional economists should have learned from the crisis and its aftermath and, second, some important lessons for teaching economics--especially but not exclusively macroeconomics. The two categories of lessons overlap a bit. But is it perhaps surprising how different they are.
    Date: 2014–11
  6. By: Lofstrom, Magnus (Public Policy Institute of California); Raphael, Steven (University of California, Berkeley)
    Abstract: Crime rates in the United States have declined to historical lows since the early 1990s. Prison and jail incarceration rates as well as community correctional populations have increased greatly since the mid-1970s. Both of these developments have disproportionately impacted poor and minority communities. In this paper, we document these trends. We then present an assessment of whether the crime declines can be attributed to the massive expansion of the U.S. criminal justice system. We argue that the crime is certainly lower as results of this expansion and the crime rate in the early 1990s was likely a third lower than what they would have been absent changes in sentencing practices in the 1980s. However, there is little evidence of an impact of the further stiffening of sentences during the 1990s, a period when prison and other correctional populations expanded rapidly. Hence, the growth in criminal justice populations since 1990s have exacerbated socioeconomic inequality in the U.S. without generating much benefit in terms of lower crime rates.
    Keywords: crime, criminal victimization, inequality, incarceration, prison
    JEL: D3 D63 I3
    Date: 2016–03
  7. By: Asongu, Simplice; Tchamyou, Vanessa
    Abstract: Purpose - The paper assesses how entrepreneurship affects knowledge economy (KE) in Africa. Design/methodology/approach – Entrepreneurship is measured by indicators of starting, doing and ending business. The four dimensions of the World Bank’s index of KE are employed. Instrumental variable panel fixed effects are applied on a sampled of 53 African countries for the period 1996-2010. Findings –The following are some findings. First, creating an enabling environment for starting business can substantially boost most dimensions of KE. Second, doing business through mechanisms of trade globalisation has positive effects from sectors that are not ICT and High-tech oriented. Third, the time required to end business has negative effects on KE. Practical implications – Our findings confirm the narrative that the technology in African countries at the moment may be more imitative and adaptive for reverse-engineering in ICTs and high-tech products. Given the massive consumption of ICT and high-tech commodities in Africa, the continent has to start thinking of how to participate in the global value chain of producing what it consumes. Originality/value – This paper has a twofold motivation. First, given the ambitions of African countries of moving towards knowledge based economies, the line of inquiry is timely. Second, investigating the nexus may have substantial poverty mitigation and sustainable development implications. These entail inter alia: the development of technology with value-added services; enhancement of existing agricultural practices; promotion of conditions that are essential for competitiveness and adjustment of globalization challenges.
    Keywords: Entrepreneurship; Knowledge Economy; Development; Africa
    JEL: L59 O10 O20 O30 O55
    Date: 2015–02
  8. By: Muhammad Iftikhar ul Husnain; Muhammad Khan
    Abstract: Wheat and Rice are major crops grown in Pakistan. This paper compares mean differences in the productivity and profitability of organic and conventional farms that grow these crops based on primary data collected from 444 farms. We find that growing organic crops is atleast as profitable as conventional crops because of lower input costs and higher output prices. Overall, per hectare input costs are 20% and 10% lower in organic wheat and rice farms relative to their conventional counterparts. These lower costs, however, are likely to be related to the lower yields associated with organic farms. Soils data show that the availability of nutrients such as Potassium, Phosphorous and Nitrogen is significantly higher in organic fields relative to conventional fields. Thus, organic farms tend to better conserve soil fertility and system stability than conventional farms. Based on these private and public benefits, we argue that organic agriculture should be encouraged through reductions in subsidies for conventional farming and more careful zoning and market development. Farmerâ€TMs adoption of commercial organic farming, however, will largely depend on how demand for organically farmed food continues to grow in Pakistan.
    Keywords: Pakistan, Organic Farming, Wheat, Rice, Profits, Soil Nutrients

This nep-pke issue is ©2016 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.