nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2017‒02‒05
seven papers chosen by
Karl Petrick
Western New England University

  1. Financial Structure, Cycle, and Instability By Kenshiro Ninomiya
  2. Frank H. Knight on Market Thinking:Reflections on the Logic and Ethics of the Capitalist Economy By Yasuhiro Sakai
  3. Behavioral Economics and the Atheoretical Style By Spiegler, Ran
  4. The Revolution of Grexit: The Plan By Solomos, Dionysios; Koumparoulis, Dimitrios
  5. The Illusion of the Perpetual Money Machine By Peter Cauwels; Didier Sornette
  6. The Australian Macro Database: An online resource for macroeconomic research in Australia By Timur Behlul; Anastasios Panagiotelis; George Athanasopoulos; Rob J Hyndman; Farshid Vahid
  7. Divesting Fossil Fuels: The Implications for Investment Portfolios By Trinks, Arjan; Scholtens, Bert; Mulder, Machiel; Dam, Lammertjan

  1. By: Kenshiro Ninomiya (Faculty of Economics, Shiga University)
    Abstract: The subprime loan mortgage crisis has revived scholarly interest in Minsky fs financial instability hypothesis. The related mathematical models present two types of Minskian financial structures. We construct macrodynamic models that consider both structures and discuss financial instability and cycles. We also demonstrate that one of the financial cycles occurs when a real factor stabilizes the economy. The burden of interest-bearing debt is an important determinant of the cycle. We posit that the escalating financial fragility in this cycle is a more appropriate interpretation of the Minskian financial structure that refers to hedging, speculative and Ponzi behaviors. We further demonstrate that another financial structure destabilizes the economy. If the instability occurs at the point of fragility, then the economy may deteriorate into financial crisis. Fragility then becomes instability.
    Keywords: Minskian financial structure, financial fragility, business cycle, financial instability.
    JEL: E12 E32 E43
    Date: 2015–07
  2. By: Yasuhiro Sakai (Faculty of Economics, Shiga University)
    Abstract: The purpose of this paper is to shed a new light on the working and performance of the market economy from a pluralistic viewpoint. To this end, we first pay attention to the general equilibrium theory a la L.W. McKenzie, K. J. Arrow and G. Debreu. Whereas this theory seems to be established on the foundation of solid logic and advanced mathematics, the existence of special ethics and ideology behind the scenes should not be forgotten. We next reexamine the thought of Frank H. Knight, who has raised an strong objection against glorification of the market economy. In the late 1960s, I was a graduate student at the University of Rochester. I still recall the touching moment when Professor McKenzie, finally succeeding after a long struggle to prove the existence of a competitive economy by help of a mathematical theorem of fixed point, posed a bit in a class and said quietly, "It' so beautiful! ". The world was then in the midst of Cold War and divided into the two powerful blocs, the socialist bloc dominated by the Soviet Union and the capitalist block led by the United States of America. McKenzie's complacent whispering sounded like the victory declaration of capitalism over socialism. Around 40 years have passed since then. It seems that the "academic Cold War" between Marxian economics and modern economics is now over. At the same time, the ethics and ideology of general equilibrium looks surely fading away although it is not completely vanished. It is our regret, however, the new, synthetic social science which can replace the existing dogmatic doctrines are not in sight yet. A completely new approach like a second Knight or a second Keynes would urgently be needed.
    Keywords: Knight, market thinking, general equilibrium, ethics, ideology
    Date: 2016–12
  3. By: Spiegler, Ran
    Abstract: Behavioral economics is perceived by many to be part of a general shift in the culture of economics toward a less theoretical style. I present a critical discussion of certain manifestations of this trend: a preference for an anecdotal style of exposition (illustrated by Akerlof and Shiller's Phishing for Phools), reduced-form modeling (illustrated by Campbell's Ely Lecture), and the method of capturing psychological forces using parametric modifications of conventional functional forms. I argue that the subject of "psychology and economics" is intrinsically foundational, and that a pure-theory component is essential for it to realize its transformative potential.
    JEL: D03
    Date: 2017–01
  4. By: Solomos, Dionysios; Koumparoulis, Dimitrios
    Abstract: On July 5, 2015, Greece held a referendum for deciding on the blackmailing proposal submitted by the Institutions of the Eurogroup on 25th of June 2015. On the threshold of the credit suffocation, the Greek people did not relent and they expressed through their vote (a percentage of 61, 31% and 3.558.450 votes) their objection; one more “NO” in their history, similar to this of 28th October of 1940. However, the Greek leaders flinched to express this “NO” using tangible policies even if the short term consequences would be painful. Instead, the foreign partners, allies and friends to Greece “which belongs to the West”, still follow a strict austerity policy which has resulted in poverty of the majority of the Greek people, and in the stagflation. Igglesis Nikos, in his book “The Revolution of GREXIT: The Plan”, makes an attempt to present in a detailed way what the Greek people decided…an alternative and sustainable solution.
    Keywords: Grexit
    JEL: A10
    Date: 2017
  5. By: Peter Cauwels (ETH Zürich); Didier Sornette (Swiss Finance Institute and ETH Zürich)
    Abstract: We argue that the present crisis and stalling economy continuing since 2007 have clear origins, namely in the delusionary belief in the merits of policies based on a “perpetual money machine†type of thinking. Indeed, we document strong evidence that, since the early 1980s, consumption has been increasingly funded by smaller savings, booming financial profits, wealth extracted from house price appreciation and explosive debt. This is in stark contrast with the productivity-fueled growth that was seen in the 1950s and 1960s. This transition, starting in the early 1980s, was further supported by a climate of deregulation and a massive growth in financial derivatives designed to spread and diversify the risks globally. The result has been a succession of bubbles and crashes, including the worldwide stock market bubble and great crash of 19 October 1987, the savings and loans crisis of the 1980s, the burst in 1991 of the enormous Japanese real estate and stock market bubbles and its ensuing “lost decades†, the emerging markets bubbles and crashes in 1994 and 1997, the LTCM crisis of 1998, the dotcom bubble bursting in 2000, the recent house price bubbles, the financialization bubble via special investment vehicles, speckled with acronyms like CDO, RMBS and CDS, the stock market bubble, the commodity and oil bubbles and the debt bubbles, all developing jointly and feeding on each other until the climax of 2008, which brought our financial system close to collapse. Rather than still hoping that real wealth will come out of money creation, an illusion also found in the current management of the on-going European sovereign and banking crises, we need fundamentally new ways of thinking. Governing is the art of planning and prediction. In uncertain times, it is essential, more than ever, to think in scenarios: what can happen in the future, and, what would be the effect on your wealth and capital? How can you protect yourself and your dearest against adverse scenarios? We thus end by examining the question “what can we do?†from the macro level, discussing the fundamental issue of incentives and of constructing and predicting scenarios as well as developing investment insights.
    Keywords: economic growth, productivity, financial markets, investments, returns, debt, bubbles, monetary policy
    JEL: D53 D90 E20 E30 E60 G01
  6. By: Timur Behlul; Anastasios Panagiotelis; George Athanasopoulos; Rob J Hyndman; Farshid Vahid
    Abstract: A website that encourages and facilities the use of quantitative, publicly available Australian macroeconomic data is introduced. The Australian Macro Database hosted at provides a user friendly front end for searching among over 40000 economic variables, sourced from the Australian Bureau of Statistics and the Reserve Bank of Australia. The search box, tags and categories used to facilitate data retrieval, are described in detail. Known issues with the website and future plans are discussed in the conclusion
    Keywords: Economic time series, macroeconomic data, Australian Bureau of Statistics, Reserve Bank of Australia, FRED.
    JEL: C55 C82
    Date: 2017
  7. By: Trinks, Arjan; Scholtens, Bert; Mulder, Machiel; Dam, Lammertjan
    Abstract: Fossil fuel divestment campaigns urge investors to sell their stakes in companies that supply coal, oil, and gas. However, avoiding investments in such companies can be expected to impose a financial cost on the investor because of reduced opportunities for portfolio diversification. We compare the risk-adjusted return performance of investment portfolios with and without fossil fuel companies over the period 1927-2015. Contrary to theoretical expectations, we find that fossil-free investing does not seem to impair financial performance. These findings can be explained by the fact that fossil fuel company portfolios do not generate above-market performance and provide relatively limited diversification benefits. Significant performance impacts of a divestment strategy, however, are observed over short time frames and when applying divestment to less diversified investment portfolios.
    Keywords: Fossil Fuel Divestment, Socially Responsible Investing, Portfolio Performance, Risk-adjusted returns, Market Capitalization, GARCH
    JEL: G11 Q41
    Date: 2017–01–16

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