nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2017‒12‒03
twelve papers chosen by
Karl Petrick
Western New England University

  1. The effect of income distribution and fiscal policy on growth, investment, and budget balance By Thomas Obst; Özlem Onaran; Maria Nikolaidi
  2. Are current accounts driven by competitiveness or asset prices? A synthetic model and an empirical test By Alexander Guschanski; Engelbert Stockhammer
  3. Geography, institutions and development: a review ofthe long-run impacts of climate change By Lopez-Uribe, Maria del Pilar; Castells-Quintana, David; McDermott, Thomas K. J.
  4. Varieties of capitalism and growth regimes By Jan Behringer; Till van Treeck
  5. Financial Fragility and the Keynesian Multiplier By van der Kwaak, Christiaan; van Wijnbergen, Sweder
  6. Racial prejudice and labour market penalties during economic downturns By Johnston, David W.; Lordan, Grace
  7. Book review: Marta Harnecker, A world to build: new paths toward twenty-first century socialism By Yaffe, Helen
  8. The Postwar British Productivity Failure By Crafts, Nicholas
  9. Women's empowerment and migration in the Caribbean By Platonova, Anna; Gény, Lydia Rosa
  10. Escaping unemployment traps By Acharya, Sushant; Bengui, Julien; Dogra, Keshav; Wee, Shu Lin
  11. The legacy of the Eurozone crisis and how to overcome it By de Grauwe, Paul

  1. By: Thomas Obst; Özlem Onaran; Maria Nikolaidi
    Abstract: This paper develops a multi-country post-Kaleckian demand-led growth model that incorporates the role of the government. One novelty of this paper is to integrate crosscountry effects of both changes in income distribution and fiscal policy. The model is used to estimate econometrically the effects of income distribution and fiscal policy on the components of aggregate demand in EU15 countries. The results show that a policy mix that combines the simultaneous implementation of a pro-labour wage policy, an expansionary fiscal policy and a progressive tax policy in all EU countries leads to a significant rise in the EU15 GDP. The impact of wage policies is positive but small; the overall stimulus becomes much stronger with fiscal expansion. This policy mix leads to an improvement in the budget balance in all the EU15 countries, suggesting that expansionary fiscal policy is sustainable when it is combined with wage and progressive tax policy.
    Keywords: Wage Share, Growth, European Multiplier, Demand Regime, Fiscal Policy
    JEL: E12 E22 E25 E62
    Date: 2017
  2. By: Alexander Guschanski; Engelbert Stockhammer
    Abstract: This paper analyses the emergence of current account imbalances as a result of the co-existence of trade flows and financial flows. The literature has tended to view these factors in isolation: many post-Kaleckian models, as well as Net-saving approaches assume that financial flows will adjust to trade flows. Models focusing on financial crises feature a strong role for financial flows but ignore drivers of trade flows. Similarly, empirical analyses either ignore drivers of financial flows or insufficiently capture determinants of trade flows. The paper, first, proposes a simple macroeconomic framework of the current account which gives equal emphasis to trade flows, determined by price competitiveness, and financial flows, determined by asset prices. Second, we test a reduced form of the model for 28 OECD countries for the period 1971-2014. Our results indicate that cost competitiveness as well as asset prices play a role in the determination of current accounts, but asset prices have dominated in the last two decades.
    Keywords: current account, financial flows, competitiveness, asset prices
    JEL: E12 F32 F41
    Date: 2017–11
  3. By: Lopez-Uribe, Maria del Pilar; Castells-Quintana, David; McDermott, Thomas K. J.
    Abstract: The links between climate change, economic growth and economic development have gained increasing attention over recent years in both the academic and policy literature. However, most of the existing literature has tended to focus on direct, short run effects of climate change on the economy, for example due to extreme weather events and changes in agricultural growing conditions. In this paper we review potential effects of climate change on the prospects for long-run economic development. These effects might operate directly, via the role of geography (including climate) as a fundamental determinant of relative prosperity, or indirectly by modifying the environmental context in which political and economic institutions evolve. We consider potential mechanisms from climate change to long-run economic development that have been relatively neglected to date, including, for instance, effects on the distribution of income and political power. We conclude with some suggestions for areas of future research.
    JEL: J1
    Date: 2017
  4. By: Jan Behringer; Till van Treeck
    Abstract: This article brings together the varieties of capitalism and the growth model approaches to comparative political economy to analyze the macroeconomic implications of changes in income distribution. In the decades before the financial crisis, coordinated market economies (CMEs) and liberal market economies (LMEs) developed different but unsustainable growth models which resulted in global current account imbalances. We analyze the relative importance of wage coordination and income distribution in explaining the emergence of global imbalances. We argue that strongly rising top income shares contributed to the decline in household saving and current account balances in major LMEs, whereas pronounced falls in the wage share contributed to the weakness of domestic demand and rising current account balances in CMEs. Wage coordination affected current account balances both directly and, more importantly, indirectly through its effects on income distribution. We test the argument for a sample of 18 industrialized countries over the period 1981-2007.
    Date: 2017
  5. By: van der Kwaak, Christiaan; van Wijnbergen, Sweder
    Abstract: Abstract We investigate the effectiveness of fiscal stimuli when banks are undercapitalized and have large holdings of government bonds subject to sovereign default risk. Deficit-financed government purchases then crowd out private expenditure and fiscal multipliers can turn negative. Crowding out increases for longer maturity bonds and higher sovereign default risk. We estimate a DSGE model with financial frictions for Spain and find that investment crowding out indeed leads to a negative cumulative fiscal multiplier. When monetary policy is exogenous, like at the ZLB or in a currency union, fiscal stimuli become more effective but multipliers are reduced when banks are undercapitalized.
    Keywords: Financial Intermediation; Macrofinancial Fragility; Fiscal Policy; Sovereign Default Risk
    JEL: E44 E62 H30
    Date: 2017–10
  6. By: Johnston, David W.; Lordan, Grace
    Abstract: Do economic downturns encourage racist attitudes? Does this in-turn lead to worse labour market outcome for minorities? We assess these important questions using British attitude and labour force data. The attitude data show that racial prejudice is countercyclical, with the effect driven by large increases for high-skilled middle-aged working men – a 1%-point increase in unemployment is estimated to increase self-reported racial prejudice by 4%-points. Correspondingly, the labour force data show that racial employment and wage gaps are counter-cyclical, with the largest effects also observed for high-skilled men, especially in the manufacturing and construction industries – a 1%-point increase in unemployment is estimated to increase the wage gap by 3%. These results are entirely consistent with the theoretical literature, which proposes that racial prejudice and discrimination are the result of labour market competition among individuals with similar traits, and that the effects of this competition are exacerbated during periods of economic downturn.
    Keywords: prejudice; recessions; racism; discrimination
    JEL: J01 J70 J71
    Date: 2016
  7. By: Yaffe, Helen
    JEL: B14 B24 P2 P3
    Date: 2016
  8. By: Crafts, Nicholas (University of Warwick)
    Abstract: British productivity growth disappointed during the early postwar period. This reflected inadequate investment in equipment and skills but also entailed inefficient use of inputs. Weak management, dysfunctional industrial relations, and badly-designed economic policy were all implicated. The policy framework was partly the result of seeking low unemployment through wage restraint by appeasement of organized labour. A key aspect was weak competition. This exacerbated corporate governance and industrial-relations problems in the British ‘variety of capitalism’ which sustained low effort bargains and managerial incompetence. Other varieties of capitalism were better placed to achieve fast growth but were infeasible for Britain given its history.
    Keywords: competition ; productivity ; relative economic decline ; varieties of capitalism
    JEL: N14 P17
    Date: 2017
  9. By: Platonova, Anna; Gény, Lydia Rosa
    Abstract: This paper presents a contextual analysis of the mutual relations between migration and women’s empowerment with the aim to facilitate the debate among stakeholders, including policymakers, practitioners and civil society in the Caribbean subregion on the role of migration as a means of empowerment for women. When contextualized in the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals, this debate should inform practical actions for the formulation of the Global Compact for safe, orderly and regular migration that will be adopted in 2018, and more broadly for sustainable development that will ensure that no one is left behind as Member States and other stakeholders strive towards achieving inclusive, fairer, and sustainable societies.
    Date: 2017–11
  10. By: Acharya, Sushant (Federal Reserve Bank of New York); Bengui, Julien (Université de Montréal); Dogra, Keshav (Federal Reserve Bank of New York); Wee, Shu Lin (Carnegie Mellon University)
    Abstract: We present a model in which temporary shocks can permanently scar the economy's productive capacity. Unemployed workers lose skill and are expensive to retrain, generating multiple steady state unemployment rates. Large temporary shocks push the economy into a liquidity trap, generating deflation. With nominal wages unable to adjust freely, real wages rise, reducing hiring and catapulting the economy toward the high-unemployment steady state. Even after a short-lived liquidity trap, the economy recovers slowly at best; at worst, it falls into a permanent unemployment trap. Because monetary policy may be powerless to escape such a trap ex post, it is especially important to avoid it ex ante: policy should be preventive rather than curative. The model can quantitatively account for the slow recovery in the United States following the Great Recession. The model also suggests that a lack of swift monetary accommodation by the ECB can help explain stagnation in the European periphery.
    Keywords: hysteresis; monetary policy; multiple steady states; skill depreciation
    JEL: E24 E3 E5 J23 J64
    Date: 2017–11–01
  11. By: de Grauwe, Paul
    Abstract: I argue first that the Eurozone crisis has left a legacy of unsustainable government debt levels. These will continue to exert a deflationary dynamics in the Eurozone. Second, I argue that the institutional innovations since the start of the debt crisis fall short of what is needed to solve the design failures of the Eurozone. In addition, they are not sustainable, mainly because they have led to a situation where bureaucratic institutions have been vested with more responsibilities without a concomitant increase in the democratic legitimacy of these institutions.
    Keywords: monetary union; Eurozone; deflation
    JEL: F3 G3
    Date: 2016–02–03
  12. By: Humberto Barreto (Department of Economics and Management, DePauw University)
    Abstract: The primary ideas in Piketty’s Capital should be incorporated into the economics curriculum. Unfortunately, its theoretical foundation—the Solow Model—when conventionally taught with a Solow diagram or analytical solution, is beyond the reach of the typical undergraduate. The model, however, can be effectively presented via simulation, with steady-state and comparative statics properties directly observed. A single, standalone, macro-enhanced Excel workbook, Capital.xlsm, is all that is needed to teach the main ideas in Piketty’s Capital. Download it here or from this direct link: lsm
    Keywords: inequality, simulation, Excel, income distribution, Solow Model, economic growth
    JEL: A10 A20 J10
    Date: 2017–11

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