nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2016‒04‒09
eleven papers chosen by
Karl Petrick
Western New England University

  1. Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets By Kocher, Martin G.; Lucks, Konstantin E.; Schindler, David
  2. When more flexiility yields more fragility : the microfoundations of keynesian aggregate unemployment By G; Dosi; M.C. Pereira; A. Roventini; M.E. Virgillito
  3. Inequality and Financial Fragility By Yuliyan Mitkov
  4. The unresolved mystery of the great divergence is solved By Ron W Nielsen
  5. Inclusive labour market: A role for a job guarantee scheme By Klosse, Saskia; Muysken, Joan
  6. Towards a Stock-Flow Consistent Ecological Macroeconomics By Tim Jackson; Peter Victor; Asjad Naqvi
  7. Beyond carbon pricing: the role of banking and monetary policy in financing the transition to a low-carbon economy By Emanuele Campiglio
  8. Global Firms By Andrew B. Bernard; J. Bradford Jensen; Stephen J. Redding; Peter K. Schott
  9. Economic reforms, poverty and inequality By S. Mahendra Dev
  10. Organisational mergers: a behavioural perspective on identity management By Giessner, S.R.
  11. European Green Tech FDI in China: The Role of Culture By Katiuscia Vaccarini; Francesca Spigarelli; Ernesto Tavoletti

  1. By: Kocher, Martin G.; Lucks, Konstantin E.; Schindler, David
    Abstract: One possible determinant of overpricing on asset markets is a lack of self-control abilities of traders. Self-control is the individual capacity to override or inhibit undesired behavioral tendencies such as impulses and to refrain from acting on them. We implement the first experiment that is able to address a potential causal relationship between self-control abilities and systematic overpricing on financial markets by introducing an exogenous variation of self-control abilities. Our experimental conditions seek to detect some of the channels through which individual self-control problems could transmit into irrational exuberance on the aggregate level. We observe a strong effect of inhibited self-control abilities on market overpricing. Our findings are furthermore robust to reducing self-control abilities only for a moderate share of traders in a market. Low self-control traders engage in more speculative behavior early on, but because others imitate their trading patterns, they do not end up earning less and are not driven out of the market.
    Keywords: Behavioral finance; trader behavior; self control; experimental asset markets; overpricing
    JEL: G02 G11 G12 D53 D84
    Date: 2016–02–29
  2. By: G; Dosi (Scuola Superiore Sant'Anna); M.C. Pereira (University of Campinas); A. Roventini (OFCE, Sciences Po, Scuola Superiore Sant'Anna); M.E. Virgillito (Scuola Superiore Sant'Anna)
    Abstract: Wages are an element of cost crucially a ecting the competitiveness of individual rms. Butthe 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 e ects of two \archetypes of capitalism", in terms of regimes of labour governance { defined by the mechanisms of wage determination, ring, 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 di erent 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 E02 E12 E24
    Date: 2016–03
  3. By: Yuliyan Mitkov (Rutgers University)
    Abstract: I study how the distribution of wealth influences the government’s response to a banking crisis and the fragility of the financial system. When the wealth distribution is unequal, the government’s bailout policy during a systemic crisis will be shaped in part by distributional concerns. In particular, government guarantees of deposits will tend to be credible for relatively poor investors, but may not be credible for wealthier investors. As a result, wealthier investors will have a stronger incentive to panic and, in equilibrium, the institutions in which they invest are more likely to experience a run and receive a bailout. Thus, without political frictions and under a government that is both benevolent and utilitarian, bailouts will tend to benefit wealthy investors at the expense of the general public. Rising inequality can strengthen this pattern. In some cases, more progressive taxation reduces financial fragility and can even raise equilibrium welfare for all agents.
    Keywords: Bailouts, Inequality, Financial stability, Limited commitment
    JEL: E61 G21 G28
    Date: 2016–03–24
  4. By: Ron W Nielsen
    Abstract: The so-called great divergence in the income per capita is described in the Unified Growth Theory as one of the mind-boggling and unresolved mysteries about the growth process. This mystery has now been solved: the great divergence never happened. It was created by the manipulation of data. Economic growth in various regions is at different levels of development but it follows similar, non-divergent trajectories. Unified Growth Theory is not only scientifically unacceptable but also potentially dangerous because by promoting erroneous concepts it diverts attention from the urgent need to control the fast-increasing growth of income per capita. The distorted presentation of data supporting the concept of the great divergence shows that most regions follow the gently-increasing trajectories describing the growth of income per capita but mathematical analysis of data and even their undistorted presentations show that these trajectories are now increasing approximately vertically with time. So, while the distorted presentation of data used in the Unified Growth Theory suggests sustainable and secure economic growth, the undistorted presentation of data demonstrates that the growth is unsustainable and insecure. The concept of takeoffs from stagnation to the sustained-growth regime promoted in the Unified Growth Theory is also dangerously misleading because it suggests a sustainable and prosperous future while the mathematical analysis of data shows that the current economic growth is dangerously insecure and unsustainable.
    Date: 2016–03
  5. By: Klosse, Saskia (Faculty of Law, Maastricht University); Muysken, Joan (UNU-MERIT & SBE, Maastricht University)
    Abstract: In the European labour market there is a clear scope for improvement in activity rates. Moreover, sustainable employment is impeded by the pervasiveness of temporary work, self-employment and part-time work. As a consequence there is a clear role for active inclusion policies, complemented by stimulating macroeconomic policies. However, the implementation of appropriate policies, initiated in 2008, never really took off and stagnated due to the austerity measures enforced after the financial crisis. For that reason we propose to experiment with Job Guarantee (JG) projects. On the one hand, JG projects should provide a macroeconomic stimulus to the economy by employing everybody who is out of work in JG jobs at the minimum wage. On the other hand, JG projects could stop the downward trend in job quality and foster inclusive labour markets by providing quality jobs and sustainable employment. We propose to finance the JG Scheme by redirecting social security (administration) funds, by including JG elements in the European Investment Plan (also known as the Juncker Plan) and to spend part of the € 60 billion which the ECB is injecting each month in the Euro Area on job guarantee projects.
    Keywords: inclusive labour market policies, job guarantee, sustainable employment
    JEL: J48 E60 J21 J68
    Date: 2016–03–03
  6. By: Tim Jackson; Peter Victor; Asjad Naqvi
    Abstract: Modern western economies (in the Eurozone and elsewhere) face a number of challenges over the coming decades. Achieving full employment, meeting climate change and other key environmental targets, and reducing inequality rank amongst the highest of these. The conventional route to achieving these goals has been to pursue economic growth. But this route has created two critical problems for modern economies. The first is that higher growth leads (ceteris parabis) to higher environmental impact. The second is that fragility in financial balances has accompanied relentless demand expansion. The prevailing global response to the first problem has been to encourage a decoupling of output from impacts by investing in green technologies (green growth). But this response runs the risk of exacerbating problems associated with the over-leveraging of households, firms and governments and places undue confidence in unproven and imagined technologies. An alternative approach is to reduce the pace of growth and to restructure economies around green services (post-growth). But the potential dangers of declining growth rates lie in increased inequality and in rising unemployment. Some more fundamental arguments have also been made against the feasibility of interest-bearing debt within a post-growth economy. The work described in this paper was motivated by the need to address these fundamental dilemmas and to inform the debate that has emerged in recent years about the relative merits of green growth and post-growth scenarios. In pursuit of this aim we have developed a suite of macroeconomic models based on the methodology of Post-Keynesian Stock Flow Consistent (SFC) system dynamics. Taken together these models represent the first steps in constructing a new macroeconomic synthesis capable of exploring the economic and financial dimensions of an economy confronting resource or environmental constraints. Such an ecological macroeconomics includes an account of basic macroeconomic variables such as the GDP, consumption, investment, saving, public spending, employment, and productivity. It also accounts for the performance of the economy in terms of financial balances, net lending positions, money supply, distributional equity and financial stability. This report illustrates the utility of this new approach through a number of specific analyses and scenario explorations. These include an assessment of the Piketty hypothesis (that slow growth increases inequality), an analysis of the ‘growth imperative’ hypothesis (that interest bearing debt requires economic growth for stability), and an analysis of the financial and monetary implications of green investment policies. The work also assesses the scope for fiscal policy to improve social and environmental outcomes.
    Date: 2016–03
  7. By: Emanuele Campiglio
    Abstract: It is widely acknowledged that introducing a price on carbon represents a crucial precondition for filling the current gap in low-carbon investment. However, as this paper argues, carbon pricing in itself may not be sufficient. This is due to the existence of market failures in the process of creation and allocation of credit that may lead commercial banks – the most important source of external finance for firms – not to respond as expected to price signals. Under certain economic conditions, banks would shy away from lending to low-carbon activities even in presence of a carbon price. This possibility calls for the implementation of additional policies not based on prices. In particular, the paper discusses the potential role of monetary policies and macroprudential financial regulation: modifying the incentives and constraints that banks face when deciding their lending strategy - through, for instance, a differentiation of reserve requirements according to the destination of lending - may fruitfully expand credit creation directed towards low-carbon sectors. This seems to be especially feasible in emerging economies, where the central banking framework usually allows for a stronger public control on credit allocation and a wider range of monetary policy instruments than the sole interest rate.
    Keywords: green investment; low-carbon finance; banking; credit creation; green macroprudential regulation; monetary policy
    JEL: E50 G20 Q56
    Date: 2015–03–27
  8. By: Andrew B. Bernard; J. Bradford Jensen; Stephen J. Redding; Peter K. Schott
    Abstract: Research in international trade has changed dramatically over the last twenty years, as attention has shifted from countries and industries towards the firms actually engaged in international trade. The now-standard heterogeneous firm model posits a continuum of firms that compete under monopolistic competition (and hence are measure zero) and decide whether to export to foreign markets. However, much of international trade is dominated by a few "global firms," which participate in the international economy along multiple margins and are large relative to the markets in which they operate. We outline a framework that allows firms to be of positive measure and to decide simultaneously on the set of production locations, export markets, input sources, products to export, and inputs to import. We use this framework to interpret features of U.S. firm and trade transactions data and highlight interdependencies across these margins of firm international participation. Global firms participate more intensively along each margin, magnifying the impact of underlying differences in firm characteristics, and explaining their dominance of aggregate international trade.
    Keywords: firm heterogeneity, international trade, multinationals, multi-product firms
    JEL: L11 L21 L25 L60
    Date: 2016–04
  9. By: S. Mahendra Dev (Indira Gandhi Institute of Development Research)
    Abstract: It is going to be 25 years since India embarked on big-bang economic reforms in 1991. What are the achievements in terms of growth and inclusive growth in the post-reform period? What are the issues in poverty measurement? Has poverty declined faster in the post-reform period? What are the determinants and policies needed for reduction in poverty? Has inequality increased in the reform period? What should be done to reduce inequalities? This paper addresses these questions relating to economic reforms, poverty and inequality. There has been visible change but some failures in the processes and outcomes in the post-reform period. Poverty declined faster in the second half of 2000s as compared to that of 1990s. Inequality increased in urban areas. Among other things, creation of productive employment is crucial for reduction in poverty and inequality. New generation wants equality of opportunity rather than just rights based approach. India aspiring to be a global power should invest in human capital and improve human development.
    Keywords: Poverty, inequality, economic reforms, productive employment, equality of opportunity, multi-dimensional poverty
    JEL: I31 I32 I38 J21
    Date: 2016–03
  10. By: Giessner, S.R.
    Abstract: Organisational mergers are one of the most extreme forms of organisational change processes. Consequently, they often result in difficulties for employees to adjust to the altered organisational conditions. This is often reflected in low levels of employee identification with the post-merger organisation. As a result, merging organisations experience more conflict, less employee motivation, higher turnover and lower performance levels. These low levels of post-merger identification thus often put the strategic and financial goals of the merger at risk. I argue that an organisational behaviour perspective focusing on the management of identity levels during an organisational merger provides important practical insights for employee management. I will first explain why I am personally so fascinated by this topic. I will then present an identity management perspective on organisational mergers. Here, I will consider three key aspects: (1) Identity processes; (2) Intergroup structure; and (3) Leadership. I will conclude by giving an overview of the potential challenges and directions for future research in this field.
    Keywords: mergers, acquisitions, esprit de corps, identity management, post-merger identification, social identity, human resource management, employee adjustment, uncertainty
    JEL: G34 L22 M12 M14
    Date: 2016–04–01
  11. By: Katiuscia Vaccarini (University of Macerata, Italy); Francesca Spigarelli (University of Macerata, Italy); Ernesto Tavoletti (University of Macerata, Italy)
    Abstract: The purpose of this paper is to investigate to what extent culture and language affect European foreign direct investments (FDI) in mainland-China. It provides an in-depth analysis on the perception of European and Chinese identity and the role played by language in fostering or hampering FDI, along with culture. Design/methodology/approach: our research questions are contextualized and timely/spacely bound through a multiple case study panel of six European companies, which entered the Chinese green tech market through FDI. We used quantitative and qualitative approaches and a three-phase data collection process, based on a specific protocol. Findings: findings suggest that European investors emphasize “intra-Europe” differences rather than a ”European collective (id)entity”. They have more awareness of the intra-China differences in the post-entry rather than the pre-entry period. The cultural factor goes along with the language dimension, which, in specific cases, is perceived as a higher hurdle than culture. However, by adopting a cognitive and social psychological viewpoint, language and culture are not stand-alone dimensions and intersect with each other. They both contribute to the concept of identity. Research limitation/implication: the analytical generalisation out of our multiple case study is limited to a specific industry and to specific home and target economic areas. Practical implications: our research offers an in-depth insight about the role and the perception of culture of European companies investing in China mainland. This study is not only addressed to academics and scholars, but also to managers who want to approach the market and policy makers.
    Keywords: green tech FDI, Europe, China, cultural distance, psychic distance
    JEL: L25 L26
    Date: 2015–06

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