nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2019‒03‒25
ten papers chosen by
Karl Petrick
Western New England University

  1. Debt-driven business cycles in historical perspective: The cases of the USA (1889-2015) and UK (1882-2010) By Engelbert Stockhammer; Giorgos Gouzoulis; Rob Calvert Jump
  2. "Globalization, Nationalism, and Clearing Systems" By Jan Kregel
  3. Sraffa on Marshall's Theory of Value in the Cambridge Lectures: Achievements in an Unfinished Criticism By Trezzini, Attilio
  4. Investment and savings in a dynamic context. By Claudio Sardoni
  5. Transformation of what? Or: The socio-ecological transformation of working society By Barth, Thomas; Jochum, Georg; Littig, Beate
  6. Exchange rate dynamics, balance sheet effects, and capital flows. A Minskyan model of emerging market boom-bust cycles By Karsten Kohler
  7. The Macroeconomic Implications of Consumption: State-of-Art and Prospects for the Heterodox Future Research By Brochier, Lidia; Macedo e Silva, Antonio Carlos
  8. Measuring women’s economic empowerment: Time use data and gender inequality By Gaëlle Ferrant; Annelise Thim
  9. After the Great Recession; the Laws of Unintended Consequences By De Koning, Kees
  10. Why Is Green Finance Important? By Sachs, Jeffrey D.; Woo, Wing Thye; Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad

  1. By: Engelbert Stockhammer; Giorgos Gouzoulis (King’s College London); Rob Calvert Jump
    Abstract: Minsky (1975) proposed a theory of endogenous cycles that results from the interaction of real and financial variables. Minsky’s work has inspired a growing body of literature on theoretical business cycle models, but relatively little work has been done in the empirical field. In particular, while interest in financial cycles has risen significantly after the 2007-8 financial crash, and recent empirical studies have explored the impact of debt on aggregate demand or its effect on the probability of financial crises, the literature does not test for endogenous cycle mechanisms. In contrast, the present paper investigates econometrically whether or not business cycles are driven by corporate debt and/or by mortgage debt. We estimate simple vector autoregressive moving average (VARMA) models, using historical macroeconomic data for the USA (1889-2015) and the UK (1882-2010). We find robust evidence of endogenous corporate debt-driven cycles for the USA, weak evidence of mortgage debt-driven cycles in the USA and no evidence of corporate or mortgage debt-driven cycles for the UK.
    Keywords: Minsky cycles, corporate debt, mortgage debt, business cycles, historical data
    JEL: E22 G01
    Date: 2019–03
  2. By: Jan Kregel
    Abstract: As global market integration collides with growing demands for national political sovereignty, Senior Scholar Jan Kregel contrasts two diametrically opposed approaches to managing the tensions between international financial coordination and national autonomy. The first, a road not taken, is John Maynard Keynes's proposal to reform the postwar international financial system. The second is the approach taken in the establishment of the eurozone and the development of its settlement and payment system. Analysis of Keynes's clearing union proposal and its underlying theoretical approach highlights the flaws of the current eurozone setup.
    Date: 2019–03
  3. By: Trezzini, Attilio (Roma Tre University)
    Abstract: In his Cambridge lectures, Sraffa argues that classical political economy and marginalist economics present two alternative theoretical structures. This was a major achievement reached during the preparation of the lectures. The understanding of these two theoretical structures was however still unfinished: as known, he had already identified the need for simultaneous determination of prices and distribution - a result comprehensibly not made explicit in the lectures; but the critical implications of this result for the interpretation of Marshall's position were probably not yet evident to Sraffa. He in fact still accepted the Marshallian thesis that classical political economy and marginalist economics identified two single alternative “ultimate standards of value”. Sraffa’s failure to also overcome this limitation of the debate on the ultimate standard bears witness to his, albeit critical, initial adherence to the Marshallian theoretical framework. The road towards Production of Commodities was open but still unfinished.
    Keywords: Sraffa; Piero Sraffa Papers; Marshall; Theory of costs.
    JEL: B12 B13 B24 B31
    Date: 2019–03
  4. By: Claudio Sardoni (Department of Economics and Social Sciences, Sapienza University of Rome (IT).)
    Abstract: In the 1980s Asimakopulos in dealing with the problems of finance, liquidity, investment and saving, criticized both Kalecki and Keynes for the way they dealt with the problem of the investment multiplier. Kalecki's and Keynes's insufficient attention to the time dimension of the multiplier process led them to underestimate the importance of financing investment projects, especially with regard to the problem of the conversion of the firms' short-term loans into long- term loans. When this issue is taken into due consideration, it appears that the economy's propensity to save plays some role in the determination of the conditions under which firms can carry out their investment plans. The paper concentrates on the main point made by Asimakopulos. In a dy- namical analytical context which takes explicit account of the time dimension of processes, the economy's propensity to save can a ect investment, even though this does not imply the rejection of the view that investment `comes first'. A dynamic approach has the merit to emphasize the important role that the financial system plays in the process of economic expansion and it allows to look at expansionary policies and their e ects in a more articulate and thorough way.
    Keywords: Investment, Saving, Multiplier, Finance.
    JEL: E10 E12 E43 E44
    Date: 2019–02
  5. By: Barth, Thomas (Institute for Sociology, Ludwig-Maximilians-University Munich, Germany); Jochum, Georg (School of Governance, Technical University of Munich, Germany); Littig, Beate (Institute for Advanced Studies, Vienna, Austria)
    Abstract: The critical strand of the current sustainability discourse often refers to Karl Polanyi's work "The Great Transformation" (e.g. “World in Transition – A Social Contract for Sustainability”, German Advisory Council on Global Change (WBGU), 2011). However, this reference is usually shortened, since in particular Polanyi's remarks about the commodification of labor are disregarded. Overall, work still plays a marginal role in the entire sustainability discourse. Consequently analytical as well as transformative potential remains unused. In our paper we want to put work into the center of the reflections on transformation and outline ways of a socio-ecological transformation towards a sustainable work society. For Polanyi the marketization of work and nature was in the center of his analysis of industrial society. He argues that market societies are constituted by two opposing movements - the laissez-faire movement to expand the scope of the market, and the protective countermovement that emerges to resist the disembedding of the economy. Thus transformation concepts which refer to Polanyi have to focus on the socio-ecological transformation of the working society. Accordingly, it is not just an energy turnaround as often argued, but a “work turnaround” that needs to be at the center of the (sustainability-oriented) transformation debate, which finally involves the re-embedding of the markets into society and the ecosystems. Summing up our arguments, we come to the conclusion that dominant sustainability-oriented transformation concepts fail (e.g. decarbonization, green economy), since they primarily aim at the ecological reorientation of market mechanisms. We argue that the initial point of the fundamental transformation of social relations and of social relations with nature is the (re-)organization of work. A transition to sustainability means in other words, reconceptualizing the global world of work by redefining the concept of work itself and its structural (e.g. the gendered and global division of work, paid/unpaid work, technological innovations) and institutional foundations (e.g. the role of the state). Exploring sustainable work provides a concrete basis for talking about both the direction of this transformation and the way to get there.
    Keywords: Societal-nature relationships, labor, Polanyi, sustainability, transformation research, commodification, work turnaround
    Date: 2019–02
  6. By: Karsten Kohler
    Abstract: The paper provides a dynamic Minskyan open economy model of endogenous boom-bust cycles in emerging market economies, which explains the empirically observed procyclicality of exchange rates and the countercyclicality of the trade balance. It highlights the interaction of exchange rate dynamics and balance sheets. Currency appreciation makes firm balance sheets with foreign currency debt more solid. Throughout the resulting boom phase, the current account position worsens. Pressures on the domestic exchange rate mount until the currency depreciates. Contractionary balance sheet effects then set in as domestic firms face a drop in their nominal net worth. If capital inflows are driven by exogenous risk appetite, these fluctuations can assume the form of shock-independent endogenous cycles. An exogenous increase in risk appetite increases the volatility of the cycle. We find that financial account regulation can help reduce macroeconomic volatility and that the larger the risk appetite, the more financial account regulation is required to achieve this.
    Keywords: Business cycles, boom-bust cycles, emerging market economies, Minsky
    JEL: E11 E12 F36 F41
    Date: 2019–03
  7. By: Brochier, Lidia; Macedo e Silva, Antonio Carlos
    Abstract: The recent US economic scenario has motivated a series of heterodox papers concerned with household indebtedness and consumption. Though discussing autonomous consumption, most of the theoretical papers rely on private investmentled growth models. An alternative approach is the so-called Sraffian supermultipler model, which treats long-run investment as induced, allowing for the possibility that other final demand components – including consumption – may lead long-run growth. We suggest that the dialogue between these approaches is not only possible but may prove to be quite fruitful.
    Keywords: Consumption. Household debt. Growth theories. Autonomous expenditures.
    JEL: B59 E12 E21
    Date: 2017–07
  8. By: Gaëlle Ferrant; Annelise Thim
    Abstract: Empowerment, co-ordinated jointly by the OECD Development Co-operation Directorate, the Development Centre and Statistics Directorate. The initiative aims to identify policy and programme solutions to promote women’s economic empowerment by recognising, reducing and redistributing women’s unpaid care work. This paper presents new analysis of time use data and unpaid care work from Bangladesh, Ethiopia, Peru and South Africa as well as comparisons with OECD countries. It provides recommendations for policy makers, donors and development practitioners to support the achievement of the Sustainable Development Goals, drawing on learning from the Social Institutions and Gender Index and in-country research by the OECD Policy Dialogue on Women’s Economic Empowerment. Specifically, the recommendations focus on how to recognise unpaid care work by measuring and valuing it, reduce time spent on drudgery by the provision of quality infrastructure and redistribute unpaid care tasks more equally between men and women by transforming gender stereotypes.
    Keywords: gender equality, gender gaps, time use, Unpaid care work, women’s economic empowerment
    JEL: J16 J18 J22 O18
    Date: 2019–03–13
  9. By: De Koning, Kees
    Abstract: The United States (U.S.) financial crisis of 2008 created a recession: the Great Recession. A recession is technically declared over after two subsequent quarters of economic growth. By Q3 2009 this recession was declared over. However the laws of unintended consequences show a totally different picture. Between May 2007 and October 2009 nearly 7 million U.S. individuals lost their jobs and thereby their incomes. It took just over ten years before the unemployment rate had dropped again to 4.4% -to what it was in December 2006. Equally unintended was the development in the real median household income. In 2007 this income was $59,534. It dropped to $54,569 for 2012 and it only returned back to the levels of 2007, by 2016. Another unintended consequence was the difference between the fix for the banks in trouble and those for individual mortgage borrowers in trouble. Nearly all banks were bailed out in 2008, with the odd one declared bankrupt. For individual households/mortgage borrowers there was no respite in being pursued for outstanding mortgage debt. Over the period 2007-2014 21.228 million U.S. households were confronted with foreclosure proceedings. This number represented 41.4% of all household mortgage holders in the U.S. House prices tumbled after 2007. The S&P/Case-Shiller national home price index seasonally adjusted stood at 184.52 in January 2007 and for the first time only exceeded this level by November 2018 at 184.87. New housing starts also dropped significantly. In January 2006 the number was 2.273 million annualized new starts. The trend line moved from annualized 490,000 new starts in January 2009 to 1.230 million by January 2019. Another main unintended consequence of the financial crisis was the effect on U.S. government borrowings. U.S. Federal debt increased by $4.8 trillion between Q4 2007 and Q4 2010, while real GDP still shrank. In three years the Federal Government’s debt increased by more than 50% and its growth did not stop there. Could it be argued that the government’s debt increase paid the price for the bankers’ follies? Another major change was in interest rates. Fed funds rates have not been so low for over 60 years, until recently. All these factors show that a more streamlined approach to economic thinking is needed. The interactions between the financial markets and the real economy can be better handled. Some suggestions are made in this paper.
    Keywords: Great Recession, Unintended Consequences, Mortgage Backed Securities, Market or Money Based Adjustment Strategies, Median Incomes, Foreclosures, Home Repossessions
    JEL: D12 D7 E3 E32 E6 E61 E65
    Date: 2019–03–19
  10. By: Sachs, Jeffrey D. (Asian Development Bank Institute); Woo, Wing Thye (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: In 2017, global investment in renewables and energy efficiency declined by 3% and there is a risk that it will slow further; clearly fossil fuels still dominate energy investment. This could threaten the expansion of green energy needed to provide energy security and meet climate and clean air goals. Several developed and developing economies are still following pro-coal energy policies and the extra CO2 generated by new coal-fired power plants could more than wipe out any reductions in emissions made by other nations. Finance is the engine of development of infrastructure projects, including energy projects. Generally financial institutions show more interest in fossil fuel projects than green projects, mainly because there are still several risks associated with these new technologies and they offer a lower rate of return. If we want to achieve sustainable development goals, we need to open a new file for green projects and scale up the financing of investments that provide environmental benefits, through new financial instruments and new policies, such as green bonds, green banks, carbon market instruments, fiscal policy, green central banking, financial technologies, community-based green funds, etc., which are collectively known as “green finance”.
    Keywords: green finance; renewable energy; CO2 emissions; Paris Agreement; sustainable development goals; SDGs
    JEL: O44 Q56 Q59
    Date: 2019–01–22

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