nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2019‒02‒18
seven papers chosen by
Karl Petrick
Western New England University

  1. Expenditure cascades, low interest Rates, credit deregulation or property booms? Determinants of household Dbt in OECD countries By Wildauer, Rafael; Stockhammer, Engelbert
  2. Firm beliefs and long-run demand effects in a labor-constrained model of growth and distribution By Daniele Tavani; Luke Petach
  3. A critical analysis of the secular stagnation theory By Stefano Di Bucchianico
  4. Export performance, price competitiveness and technology: Revisiting the Kaldor paradox By Claudius Graebner; Philipp Heimberger; Jakob Kapeller
  5. The Financial Instability Hypothesis Applied to the 2007 Financial Crisis. By Lim, Chen
  6. "Economic Planning under Capitalism: The New Deal and Postwar France Experiments" By Fernando J. Cardim de Carvalho
  7. Interview with Charles Goodhart By Lindé, Jesper; Goodhart, C. A. E.

  1. By: Wildauer, Rafael; Stockhammer, Engelbert
    Abstract: The past decades have witnessed a strong increase in household debt and fast growth of private consumption expenditures in many countries. This paper empirically investigates four explanations: First, the expenditure cascades hypothesis argues that an increase in inequality induced lower income groups to copy the spending behaviour of richer peer groups and thereby drove them into debt (‘keeping up with the Joneses’). Second, the housing boom hypothesis argues that increasing property prices encourage household spending and household borrowing due to wealth effects, eased credit constraints, the prospects of future capital gains and changes in mental accounts. Third, the low interest hypothesis argues that low interest rates encouraged households to take on more debt. Fourth, the credit market deregulation hypothesis argues that deregulation boosted credit supply. The paper tests these hypotheses by estimating the determinants of household borrowing using a panel of 13 OECD countries (1980-2011). Results indicate that real estate prices were the most important drivers of household debt which we interpret as the result of speculative dynamics in real estate markets. In contrast we do not find a significant impact of shifts in the income distribution on household sector indebtedness. Our results are consistent with the credit deregulation and low interest rate hypotheses, but their explanatory power for the 1995-2007 period is low.
    Keywords: household debt; income distribution; property prices
    JEL: H63
    Date: 2018–09–13
  2. By: Daniele Tavani (Colorado State University (US)); Luke Petach
    Abstract: One of the most debated questions in alternative macroeconomics regards whether demand policies have permanent or merely transitory effects. While Kaleckian ecoomists have argued that demand matters even in the long run, both economists operating within other Keynesian traditions (e.g. Skott, 1989) as well as Classical economists argue that in the long-run output growth is constrained by the so-called natural rate. This paper attempts to bridge the gap by analyzing the role of firm beliefs about the state of the economy in a labor-constrained growth and distribution model based on Kaldor (1956) and Goodwin (1967) but featuring an explicitly dynamic choice of capacity utilization. We show that: (i) the relevance of such beliefs generates an inefficiently low utilization rate and labor share in equilibrium; but (ii) the efficient utilization rate can be implemented through fiscal policy. Under exogenous technical change, (iii) the inefficiency does not affect equilibrium employment and growth, but expansionary fiscal policy has positive level effects on both GDP and the labor share. Conversely, (iv) with an endogenous bias of technical change, fiscal policy will have not just level effects but also long-run effects on labor productivity growth and the employment rate. Finally, (v) the fact that the choice of utilization responds to income shares has a stabilizing effect on growth cycles, even under exogenous technical change, that is analogous to factor substitution.
    Keywords: Beliefs, Capacity Utilization, Coordination Failures, Factor Shares, Fiscal Policy
    JEL: E12 E22 E25 E62
    Date: 2019–02
  3. By: Stefano Di Bucchianico
    Abstract: In this paper a novel critique of the neoclassical Secular Stagnation theory is presented. Focusing in particular on the ‘demand side’ explanation, it is in the first place argued for the impossibility of a longrun equilibrium position to host a negative natural interest rate, which is its main feature. The problem is theoretical and not methodological, and can be highlighted even neglecting the ‘Cambridge capital controversies’. Secondly, it is argued that, despite the label, there is not a true role for aggregate demand in determining a stagnation. It is also maintained that while the ‘supply side’ viewpoint does not suffer from these shortcomings, it cannot provide a clarification since there is no place in it for involuntary unemployment. Therefore, a demand-led alternative is advocated to be better equipped for the sake of accounting for high and persistent unemployment caused by a shortfall of aggregate demand.
    Keywords: Secular Stagnation, natural interest rate, fiscal policy
    JEL: E62 E43 E13 E12
    Date: 2019–02
  4. By: Claudius Graebner (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Philipp Heimberger (Vienna Institute for International Economic Studies); Jakob Kapeller (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: We reassess the contemporary relevance of the "Kaldor paradox" (1978), according to which changes in relative unit labor costs as well as relative export prices are positively correlated with advanced countries' export shares in world markets - although conventional trade theory predicts the opposite. Using a sample of 34 OECD countries over the period 1980-2015, we find clear evidence for the continued relevance of Kaldor's paradox. Our findings indicate that the paradox can neither be resolved by pointing to a lack of econometric sophistication in Kaldor's original work nor by exploiting additional data on other major determinants of export success (e.g. technology). A reverse-causality interpretation - according to which export success allows countries to increase relative unit labor costs without substantially reducing international competitiveness - seems most promising for rationalizing the paradox.
    Keywords: Trade, export success, competitiveness, technology, Kaldor effect
    Date: 2019–02
  5. By: Lim, Chen
    Abstract: The serious dysfunctions observed in the financial markets following the collapse of the mortgage market in the United States have given new life to the ideas of Hyman Minsky,a post-Keynesian economist. Indeed, there are many who believe that thanks to his work, the current financial crisis could have been anticipated. The key mechanism that drives an economy to a crisis is the accumulation of debt during the boom period. The economy becomes more and more fragile. Financial innovations and deregulation in a context of globalization are responsible for this situation. This is an important point of his analysis. This is one of the aspects of the "financial instability hypothesis" (FIH). The other aspect is that during periods of growth, banks and other financial intermediaries try to convince investors to buy debts through sophisticated financial innovations. The role major of financial intermediaries in the crisis process is thus highlighted. Finally, it is possible to show that the current crisis is an application of the Minsky model.
    Keywords: Financial crisis
    JEL: G01
    Date: 2018–11–01
  6. By: Fernando J. Cardim de Carvalho
    Abstract: By the beginning of the 20th century, the possibility and efficacy of economic planning was believed to have been proven by totalitarian experiments in Germany, the Soviet Union, and, to a lesser degree, Fascist Italy; however, the possibilities and limitations of planning in capitalist democracies was unclear. The challenge in the United States in the 1930s and in postwar France was to find ways to make planning work under capitalism and democratic conditions, where private agents were free to not accept its directives. This paper begins by examining the experience with planning during the first years of the New Deal in the United States, centered on the creation and operation of the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA), and continues with a discussion of the French experience with indicative planning in the aftermath of World War II. A digression follows, touching on the proximity between the matters treated in this paper and Keynes's view that macroeconomic stabilization could require a measure of socialization of investments, following James Tobin's hunch that French indicative planning, as well as some social democrat experiences in Northern Europe, could be playing precisely that role. The paper concludes by identifying the lessons one can draw from the two experiences.
    Keywords: New Deal; National Recovery Act (NRA); National Industrial Recovery Act (NIRA); Economic Planning; Economic Cooperation
    JEL: E02 E65 N12 N32 O21
    Date: 2019–02
  7. By: Lindé, Jesper; Goodhart, C. A. E.
    JEL: N0
    Date: 2018–12–01

This nep-pke issue is ©2019 by Karl Petrick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.