nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2017‒12‒18
eight papers chosen by
Karl Petrick
Western New England University

  1. The Fragility of Emerging Currencies Since the 2000s: a Minskyan Analysis By Raquel Ramos
  2. Garegnani, Ackley and the years of high theory at Svimez By Cesaratto, Sergio
  3. Reacting to the Lucas Critique: The Keynesians' Pragmatic Replies By Aurélien Goutsmedt; Erich Pinzón-Fuchs; Matthieu Renault; Francesco Sergi
  4. The Postwar British Productivity Failure By Crafts, Nicholas
  5. Governance over Economics: Making Globalisation Good for the Poor By Mamoon, Dawood
  6. A note on IYLM, ISLM and General Theory-compatible modelling By Angel Asensio
  7. Quantitative Easing in Joseph's Egypt with Keynesian Producers By Jeffrey Campbell
  8. The behavior of the money multiplier during and after the subprime crisis: Implications for the transmission mechanism of monetary policy By Cukierman, Alex

  1. By: Raquel Ramos (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The currencies of a few emerging market economies (EME) have being following a specific dynamic since the early 2000s: they are strongly connected to financial markets internationally , appreciating in moments of tranquility and presenting sharp depreciations in peaks of uncertainty. What is the mechanism behind this specific dynamic that contradicts mainstream exchange-rate theories? To answer this question, this article applies the Minskyan framework to the context of money managers and their portfolio allocation decisions. The approach allows the analysis of these currencies through money managers' decisions, putting forward that these might float according to their balance-sheet constraints-reasons not related to the currencies themselves, but to money managers' assets, liabilities, and currency mismatch. The result is a dynamic characterized by deviation-amplifying system, the opposite of the equilibrium-seeking mechanism needed for clearing markets, and high frequency of depreciations associated to the global extent of these institutions' balance-sheet.
    Keywords: Exchange rates,emerging market economies,Minsky
    Date: 2017–10–19
  2. By: Cesaratto, Sergio (University of Siena)
    Abstract: In the late 1950s, Svimez was an influential research centre on Italian economic and regional policies. It was advised and visited by top international development experts and by leading Italian economists. Pierangelo Garegnani, fresh from his seminal Ph.D. thesis on capital theory at Cambridge, wrote a report for Svimez, published in 1962, on the relevance of Keynes’ theory for economies at an intermediate stage of development, like Italy. Interestingly, in 1963 Gardner Ackley published a similar report for Svimez. The theoretical parts of Garegnani’s report were published in English in 1978-79 and 2015. In a final applied section, which has not yet been published, Garegnani estimates that a fuller utilisation of productive capacity would have allowed for the creation of 550 thousand additional jobs without problems relating to the balance of payments. In this section, Garegnani also raises several interesting theoretical issues. Ackley’s report is an econometric explanation of the Italian ‘economic miracle’ based on a demand-led growth supermultiplier model – a theoretical approach re-discovered by Bortis and Serrano, and recently taken up by Marc Lavoie and others. A comparison between these two genuine Keynesian approaches looks very promising.
    Keywords: Garegnani; Ackley; Svimez; Keynesian theory; growth theory
    JEL: B22 B24 B51
    Date: 2017–12
  3. By: Aurélien Goutsmedt (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Chaire Energie & Prospérité - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - Ecole Polytechnique - X - ENS Paris - Ecole Normale Supérieure de Paris - Institut Louis Bachelier); Erich Pinzón-Fuchs (Universidad de los Andes [Bogota]); Matthieu Renault (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Francesco Sergi (University of Bristol [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
    Date: 2017–10
  4. 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 corporategovernance 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 Classification: N14; O62; P170
    Date: 2017
  5. By: Mamoon, Dawood
    Abstract: The paper employs different definitions of inequality/ equality and investigates how globalisation is associated with these welfare measures. The nations’ proximity to post modernism development culture through international cooperation may enable countries to strengthen their social, economic, legal and political institutions. We find that adopting well developed institutional governance practices as matter of greater integration with modern 21st century governance culture creates thriving middle classes in developing countries enabling a downward pressure on inequality of incomes and wages. In contrast, integration of goods and services with world markets puts upward pressure on the wages of skilled in contrast with the unskilled causing industrial wage inequalities in both developed and developing countries. The paper recommends in line with the recent literature on pre mature de industrialisation phenomenon that countries may protect their local industries to provide jobs to locals and thus enable the gains of trade to be more equally distributed among the populations. This can be done by choosing the second best option towards global integration and that is to promote regionalism within geographical clusters.
    Keywords: Globalisation, Governance, Middle Class, Inequality
    JEL: P52
    Date: 2017–11–24
  6. By: Angel Asensio (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In a recent article titled 'IYLM: a General Theory-compatible replacement to ISLM', Roderick O'Donnell and Colin Rogers (2016, Cambridge J. of Econ. 40(1), 349-364) offer a model claimed to be 'a representation of the GT’s central general propositions' substantially different from the ISLM version. In this short note, it is shown that: a) the IY equation (product market equilibrium condition) is mis-specified, b) once the additional ‘overall equilibrium condition’ i = mec is added, the IY-LM model is formally an IS-LM model. It is argued furthermore that the effects of the entrepreneurs’ long-term expectations and of the state of liquidity preference can be made explicit in the investment and money demand functions to account for those highly Keynesian features within the IS-LM framework.
    Keywords: ISLM, IYLM, Keynes, macroeconomics, model
    Date: 2017–10–17
  7. By: Jeffrey Campbell (Federal Reserve Bank of Chicago)
    Abstract: This paper considers monetary and fiscal policy when tangible assets can be created and stored after shocks that increase desired savings, like Joseph's biblical prophecy of seven fat years followed by seven lean years. The model's flexible-price allocation mimics Joseph's saving to smooth consumption. With nominal rigidities, monetary policy that eliminates liquidity traps leaves the economy vulnerable to confidence recessions with low consumption and investment. Josephean Quantitative Easing, a fiscal policy that purchases either obligations collateralized by reproducible tangible assets or the assets themselves, eliminates both liquidity traps and confidence recessions by putting a floor under future consumption. This requires no commitment to a time-inconsistent plan. In a small open economy, the monetary authority can implement Josephean Quantitative Easing with a sterilized currency-market intervention that accumulates foreign reserves. This can improve outcomes even if it leaves nominal exchange rates unchanged.
    Date: 2017
  8. By: Cukierman, Alex
    Abstract: This short paper documents a dramatic decrease in the US conventional money multiplier since the downfall of Lehman's brothers and attributes it to the large scale quantitative easing operations of the Fed in conjunction with sluggish growth of banking credit. This, now almost ten years' old phenomenon, implies that shortage of reserves did not constitute a binding constraint on the expansion of banking credit since the start of the crisis. Since the Fed is unlikely to swiftly reduce its bloated balance sheet the banking system will continue to possess substantial excess reserves implying that they will not constitute a constraint on credit expansion for quite a while. Hence the conventional money multiplier is likely to be of little use as a predictor of the transmission of monetary base expansions to banking credit and the money supply in the foreseeable future.
    Keywords: banking credit and reserves.; monetary base; Money multiplier since the crisis and in the future; Quantitative easing
    JEL: E4 E5
    Date: 2017–12

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