nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2017‒11‒05
five papers chosen by
Karl Petrick
Western New England University

  1. Reacting to the Lucas Critique: The Keynesians' Pragmatic Replies By Aurélien Goutsmedt; Erich Pinzon-Fuchs; Matthieu Renault; Francesco Sergi
  2. Stagflation and the crossroad in macroeconomics: the struggle between structural and New Classical macroeconometrics By Aurélien Goutsmedt
  3. Does Clower’s Dual-Decision Hypothesis lead to the change in saving conclusion in Keynes’s General Theory? By Wu, Cheng
  4. The Improbability of Reswitching, the Certainty of Wicksell-Effects and the Poverty of Production Functions: The Cambridge Critique of Capital Transformed By Schefold, Bertram
  5. Consequences of Brexit and Options for a "Global Britain" By Steven Brakman; Harry Garretsen; Tristan Kohl

  1. By: Aurélien Goutsmedt (Centre d'Economie de la Sorbonne, Chaire Energie et Prospérité); Erich Pinzon-Fuchs (Los Andes University); Matthieu Renault (Centre d'Economie de la Sorbonne); Francesco Sergi (University of Bristol)
    Abstract: We illustrate how the Lucas Critique was called into question by Keynesian macroeconomists during the 1970s and 1980s. Our claim is that Keynesians' reactions were carried out from a pragmatic approach, which addressed the empirical and practical relevance of the Critique. Keynesians rejected the Critique as a general principle with no relevance for concrete macroeconometric practice; their rejection relied on econometric investigations and contextual analysis of the U.S. 1970s stagflation and its aftermath. Keynesians argued that the parameters of their models remained stable across this period, and that simpler ways to account for stagflation (such as the introduction of supply shocks into their models) provided better alternatives to improve policy evaluation
    Keywords: History of macroeconomics; Lucas Critique; Keynesian macroeconometrics; Stagflation
    JEL: B22 B41 E60 E12
    Date: 2017–10
  2. By: Aurélien Goutsmedt (Centre d'Economie de la Sorbonne, Chaire Energie et Prospérité)
    Abstract: The article studies the 1978 macroeconomics conference titled “After the Phillips Curve”, where Lucas and Sargent presented their fierce attack against structural macroeconometric models, “After Keynesian Macroeconomics”. The article aims at enlarging the comprehension of changes in macroeconomics in the 1970s. It shows: 1) that Lucas and Sargent dit not tackle directly the issue of the explanation of stagflation; 2) but that the struggle between different methodological stances in the conference cannot be separated from the way macroeconomists interpreted stagflation; 3) that it was not an opposition between being in favor or against microfounded models, but rather on the way we build microfoundations; 4) finally that the study of the 1978 conference opens the doors for scrutinizing the evolution of institution macroeconometric models of the 1970s which were not totally overthrown by Lucas and Sargent's arguments
    Keywords: History of macroeconomics; Keynesian economics; Microfoundations; Structural Macroeconometric Models
    JEL: B22 B41 E60
    Date: 2017–10
  3. By: Wu, Cheng
    Abstract: Keynes’ General Theory (1936) is probably the most challenging economics book ever written, with an abundance of hypotheses, concepts and theories. Twenty five years after its publication, Clower proposed an insightful explanation on Keynes, the Dual-Decision Hypothesis (DDH). Hall (1978) and Flavin (1981) seemingly reached the conclusion that, under certain conditions, consumption was independent of income. In contrast, Wu (2016) has shown that, change in saving has to be a function of income growth. In fact, applying Wu’s corrected consumption for period t+1, it is possible to show DDH equations leading to Keynes’ change in saving (and disequilibrium) conclusion.
    Keywords: consumption; martingale; savings; growth; income; trade; Clower; dual decision hypothesis; keynes
    JEL: A10 B22 C2 E2 E6 F0 J0 N1
    Date: 2017–10–22
  4. By: Schefold, Bertram
    Abstract: Capital theory has taken a new turn with the theoretical discovery that wage curves tend to get linear in random systems, the larger they are. The paper by argues that reswitching becomes less likely for larger systems, while Wicksell effects are almost surely present. But it can also be shown that the elasticity of substitution is likely to be small in random systems so that a policy to lower real wages will not easily generate much additional employment in a closed economy.
    Date: 2017
  5. By: Steven Brakman; Harry Garretsen; Tristan Kohl
    Abstract: The United Kingdom has opted to leave the European Union. The trade and welfare consequences of this decision are large; most studies predict a trade and welfare loss for both the UK and the EU. The UK parliament has indicated that it aims for new and ambitious trade agreements following Brexit, but has not been explicit what type of trade agreements it envisions (except that it should be broad) or with whom specifically. In this paper, we consider the UK’s options. We first confirm, in line with existing studies, that the negative trade consequences of Brexit are substantial, especially for the UK and also for the EU. After reviewing all potential options, we have a simple answer to the question whether the UK has an alternative for the existing trade agreement with the EU. The answer is: No. Only a trade agreement with the EU can compensate for the negative trade consequences of Brexit.
    Keywords: Brexit, Gravity Model, trade predictions
    JEL: F13 F14
    Date: 2017

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