nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒02‒19
twelve papers chosen by
Karl Petrick
Western New England University

  1. "Why the United States Will Beat China to the Next Minsky Moment" By L. Randall Wray
  2. The impact of financialisation on the wage share: a theoretical clarification and empirical test By Karsten Kohler; Alexander Guschanski; Engelbert Stockhammer
  3. "Does the United States Face Another Minsky Moment?" By L. Randall Wray
  4. The Grand Tour: Keynes and Goodwin go to Greece By Eduardo A. Haddad; Natalia Q. Cotarelli, Thiago C. Simonato, Vinicius A. Vale; Jaqueline C. Visentin
  5. Real Keynesian Models and Sticky Prices By Paul Beaudry; Franck Portier
  6. Kapitalismus versus Marktwirtschaft. Karl Marx und Fernand Braudel By Faber, Malte; Petersen, Thomas
  7. The role of natural resources in production: Georgescu-Roegen/Daly versus Solow/Stiglitz By Quentin Couix
  8. An analytical framework for identifying optimal pathways towards sustainable development By Jaebeum Cho; Alberto Isgut; Yusuke Tateno
  9. The American paradox: ideology of free markets and the hidden practice of directional thrust By Wade, Robert H.
  10. An interdisciplinary model for macroeconomics By haldane, Andrew; Turrell, Arthur
  11. Is Envy Harmful to a Society’s Psychological Health and Wellbeing? A Longitudinal Study of 18,000 Adults By Mujcic, Redzo; Oswald, Andrew J
  12. 'A Theory of Social Norms, Women's Time Allocation, and Gender Inequality in the Process of Development' By Pierre-Richard Agénor

  1. By: L. Randall Wray
    Abstract: The outgoing governor of the People’s Bank of China recently warned of a possible Chinese "Minsky moment"--Paul McCulley’s term, most recently applied to the 2007 US real estate crash that reverberated around the world as a global financial crisis. Although Western commentators have weighed in on both sides of the debate about the likelihood of China’s debt bubble bursting, Senior Scholar L. Randall Wray argues that too little attention is being paid to the far more probable repeat of a US Minsky moment. US prospects for growth, as well as for successfully handling the next financial meltdown, are dismal, he concludes.
    Date: 2018–02
  2. By: Karsten Kohler (None); Alexander Guschanski; Engelbert Stockhammer
    Abstract: It is frequently asserted that financialisation has contributed to the decline in the wage share. This paper provides a theoretical clarification and a systematic empirical investigation. We identify four channels through which financialisation can affect the wage share: (1) enhanced exit options of firms; (2) rising price mark-ups due to financial overhead costs for businesses; (3) increased competition on capital markets and shareholder value orientation; and (4) the role of household debt in increasing workers’ financial vulnerability and undermining their class consciousness. The paper compiles a comprehensive set of empirical measures of financialisation and uses it to test these hypotheses with a panel regression of 14 OECD countries over the 1992-2014 period. We find strong evidence for negative effects of financial liberalisation and financial payments of non-financial corporations on the wage share that are in the same order of magnitude as the effects of globalisation.
    Keywords: financialization, income distribution, political economy
    JEL: E25
    Date: 2018–01
  3. By: L. Randall Wray
    Abstract: It is beginning to look a lot like déjà vu in the United States. According to Senior Scholar L. Randall Wray, the combination of overvalued stocks, overleveraged banks, an undersupervised financial system, high indebtedness across sectors, and growing inequality together should remind one of the conditions of 1929 and 2007. Comparing the situations of the United States and China, where the outgoing central bank governor recently warned of the fragility of China's financial sector, Wray makes the case that the United State is far more likely to "win" the race to the next "Minsky moment." Instead of sustainable growth, we have "bubble-ized" our economy on the back of an overgrown financial sector--and to make matters worse, he concludes, US policymakers are ill-prepared to deal with the coming crisis.
    Date: 2018–02
  4. By: Eduardo A. Haddad; Natalia Q. Cotarelli, Thiago C. Simonato, Vinicius A. Vale; Jaqueline C. Visentin
    Abstract: The impact of the crisis in the Greek economy was not uniform among the regions, threatening socioeconomic cohesion. In this paper, we explore the concept of the income multiplier in a multi-regional setting, in the context of the Greek recession, showing empirical evidence for the increasing magnitude of the multiplier during the recession period. The main results reveal a complex system of interregional relations on some of whose structural characteristics the cyclical reaction paths of the regions depends. In this case, the use of fiscal instruments to stimulate local activity in the regions may bring about important implications for regional inequality in Greece
    Keywords: Keynesian multiplier; recessions; Greece; austerity policy; countercyclical regional policy
    JEL: E12 E62 R11
    Date: 2018–02–06
  5. By: Paul Beaudry; Franck Portier
    Abstract: In this paper we present a generalized sticky price model which allows, depending on the parameterization, for demand shocks to maintain strong expansionary effects even in the presence of perfectly flexible prices. The model is constructed to incorporate the standard three-equation New Keynesian model as a special case. We refer to the parameterizations where demand shocks have expansionary effects regardless of the degree of price stickiness as Real Keynesian parameterizations. We use the model to show how the effects of monetary policy–for the same degree of price stickiness–differ depending whether the model parameters are within the Real Keynesian subset or not. In particular, we show that in the Real Keynesian subset, the effect of a monetary policy that tries to counter demand shocks creates the opposite tradeoff between inflation and output variability than under more traditional parameterizations. Moreover, we show that under the Real Keynesian parameterization neo-Fisherian effects emerge even though the equilibrium remains unique. We then estimate our extended sticky price model on U.S. data to see whether estimated parameters tend to fall within the Real Keynesian subset or whether they are more in line with the parameterization generally assumed in the New Keynesian literature. In passage, we use the model to justify a new SVAR procedure that offers a simple presentation of the data features which help identify the key parameters of the model. The main finding from our multiple estimations, and many robustness checks is that the data point to model parameters that fall within the Real Keynesian subset as opposed to a New Keynesian subset. We discuss both how a Real Keynesian parametrization offers an explanation to puzzles associated with joint behavior of inflation and employment during the zero lower bound period and during the Great Moderation period, how it potentially changes the challenge faced by monetary policy if authorities want to achieve price stability and favor employment stability.
    JEL: E24 E3 E32
    Date: 2018–01
  6. By: Faber, Malte; Petersen, Thomas
    Abstract: Since the beginning of the finance crisis, the notion of capitalism and the adjective capitalistic are more and more employed in public discourse without making an attempt to define it. In contrast, the concept of market economy is less used. We try in this paper to differentiate both concepts by going back to the approaches by Karl Marx (1818-1883) and Fernand Braudel (1902-1985). Marx does not use the term capitalism but only capitalistic production, while Braudel argues on the basis of a wealth of empirical evidence that one has to differentiate between capitalism and market economy, because he sees a contrast between them. For this reason, he has different view of a capitalistic economy as Marx has. JEL classification: B14, B24, P10, P16, P5
    Keywords: capitalism, capitalistic production, market economy, political economy
    Date: 2018–02–14
  7. By: Quentin Couix (Centre d'Economie de la Sorbonne)
    Abstract: This paper proposes a historical and epistemological account of one of the key controversy between natural resources economics and ecological economics, lasting from early 1970s to the end of 1990s. It shows that the theoretical disagreement on the scope of the economy's dependence to natural resources, such as energy and minerals, has deep methodological roots. On one hand, Solow's and Stiglitz's works are built on a “model-based methodology”, where the model precedes and supports the conceptual foundations of the theory and in particular the assumption of “unbounded resources productivity”. On the other hand, Georgescu-Roegen's counter-assumption of “thermodynamic limits to production”, later revived by Daly, rest on a methodology of “interdisciplinary consistency” which considers thermodynamics as a relevant scientific referent for economic theory. While antagonistic, these two methodologies face similar issues regarding the conceptual foundations that arise from them, which is a source of confusion and of the difficult dialogue between paradigms
    Keywords: natural resources; thermodynamics; growth; sustainability; model; theory; methodology
    JEL: B22 B41 Q01 Q32 Q43 Q57
    Date: 2018–01
  8. By: Jaebeum Cho (Cornell University); Alberto Isgut (; Yusuke Tateno (
    Abstract: The freedom accorded to governments on how to achieve the ambitious and holistic 2030 Agenda for Sustainable Development raises the critical issue of how countries should adapt the Sustainable Development Goals at the national level. This paper presents an analytical framework that merges methods from complexity science with economic analyses to address this issue of adaptation. The proposed framework 1) highlights the interlinkages, including complementarities, synergies and trade-offs across different Goals, 2) measures the country’s capacities to achieve the Goals, and 3) identifies optimal pathways for progress towards sustainable development. Using Bangladesh, Kazakhstan, and Fiji as examples, the derived pathways for progress are seen to align well with traditional development theory. However, the paths are reflective of the specific circumstances of each country, which in turn dictates their development paths. Overall, the framework provides a guidebook that may inform national deliberations on the adaptation by proposing pathways for progress that take into account interdependencies across different sectors as well as countries’ unique circumstances.
  9. By: Wade, Robert H.
    Abstract: The USA presents a paradox. The US state has practised production-focused industrial policy from the early years of the republic, with benefits that by any plausible measure far exceed costs. But since the 1980s, the exchange-focused idea that ‘the free market is what works, and having the state help it is usually a contradiction in terms’ has been at the normative centre of gravity in public policy discourse. With ‘industrial policy’ rendered toxic, the state has disguised its production-focused practice, to the point where even non-ideological academic researchers claim that the USA does industrial policy not at all, or badly. This essay reviews the history of US industrial policy, with an emphasis on ‘network-building industrial policy’ over the past two decades. At the end, it draws a lesson for policy communities in other countries and interstate development organisations such as the World Bank and IMF.
    Keywords: industrial policy; US developmental state; networks; varieties of capitalism; leading the market; following the market
    JEL: H54 L5 N62 O52
    Date: 2017–02–06
  10. By: haldane, Andrew (Bank of England); Turrell, Arthur (Bank of England)
    Abstract: Macroeconomic modelling has been under intense scrutiny since the Great Financial Crisis, when serious shortcomings were exposed in the methodology used to understand the economy as a whole. Criticism has been levelled at the assumptions employed in the dominant models, particularly that economic agents are homogeneous and optimising and that the economy is equilibrating. This paper seeks to explore an interdisciplinary approach to macroeconomic modelling, with techniques drawn from other (natural and social) sciences. Specifically, it discusses agent-based modelling, which is used across a wide range of disciplines, as an example of such a technique. Agent-based models are complementary to existing approaches and are suited to answering macroeconomic questions where complexity, heterogeneity, networks, and heuristics play an important role.
    Keywords: Macroeconomics; modelling; agent-based model
    JEL: A12 C60 E17 E60
    Date: 2017–11–17
  11. By: Mujcic, Redzo; Oswald, Andrew J (University of Warwick, CAGE, and IZA)
    Abstract: Nearly 100 years ago, the philosopher and mathematician Bertrand Russell warned of the social dangers of widespread envy. One view of modern society is that it is systematically developing a set of institutions -- such as social media and new forms of advertising -- that make people feel inadequate and envious of others. If so, how might that be influencing the psychological health of our citizens? This paper reports the first large-scale longitudinal research into envy and its possible repercussions. The paper studies 18,000 randomly selected individuals over the years 2005, 2009, and 2013. Using measures of SF-36 mental health and psychological well-being, four main conclusions emerge. First, the young are especially susceptible. Levels of envy fall as people grow older. This longitudinal finding is consistent with a cross-sectional pattern noted recently by Nicole E. Henniger and Christine R. Harris, and with the theory of socioemotional regulation suggested by scholars such as Laura L. Carstensen. Second, using fixed-effects equations and prospective analysis, the analysis reveals that envy today is a powerful predictor of worse SF-36 mental health and well-being in the future. A change from the lowest to the highest level of envy, for example, is associated with a worsening of SF-36 mental health by approximately half a standard deviation (p
    Keywords: Envy ; age ; SF-36 ; mental health ; well-being ; longitudinal data
    Date: 2018
  12. By: Pierre-Richard Agénor
    Abstract: This paper studies how social norms influence gender bias in the workplace and in the family, how these two forms of discrimination interact among themselves and with intra-household bargaining, and how gender norms evolve in the course of development. The presence of women in the labor market is a key determinant of the degree of gender bias in the workplace. Household preferences towards girls' education depend on women's bargaining power which, through the male-female wage gap, depends itself on gender bias in the labor market. Experiments with a calibrated version of the model for a stylized low-income country show that interactions between social norms, women's time allocation, and gender gaps are a critical source of growth dynamics. Initial measures aimed at mitigating the influence of discriminatory norms regarding gender roles in the workplace and in the family can magnify over time the benefits of standard policy prescriptions (aimed for instance at fostering childhood education) in promoting development and gender equality.
    Date: 2018

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