nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2020‒11‒09
five papers chosen by
Karl Petrick
Western New England University

  1. "Alternative Macro Policy Response for a Pandemic Recession" By Jan Kregel
  2. "Debt Management and the Fiscal Balance" By Jan Toporowski
  3. Why MMT can’t work: A Keynesian Perspective By Biagio Bossone
  4. The Financialized State By Dick Bryan; David Harvie; Mike Rafferty; Bruno Tinel
  5. Let's Close the Gap: Revising Teaching Materials to Reflect How the Federal Reserve Implements Monetary Policy By Jane E. Ihrig; Scott A. Wolla

  1. By: Jan Kregel
    Abstract: As COVID-19 infection and test positivity rates rise in the United States and federal stimulus plans expire, Senior Scholar Jan Kregel articulates an alternative approach to analyzing the economic problems raised by the pandemic and organizing an appropriate policy response. In contrast to both the mainstream and some Keynesian-inspired approaches, Kregel advocates a central role for direct social provisioning as a means of equitably sharing the costs of quarantine under conditions of strict lockdown.
    Date: 2020–10
  2. By: Jan Toporowski
    Abstract: In this policy note, Jan Toporowski provides an analysis of government debt management using fiscal principles derived from the work of Michal Kalecki. Dividing the government's budget into a "functional" and "financial" budget, Toporowski demonstrates how a financial budget balance--servicing government debt from taxes on wealth and profits that do not affect incomes and expenditures in the economy--allows a government to manage its debts without compromising the macroeconomic goals set in the functional budget. By splitting the budget into a functional budget that affects the real economy and a financial budget that just maintains debt payments and the liquidity of the financial system, the government can have two independent instruments that can be used to target, respectively, the macroeconomy and government debt-overcoming a dilemma that makes fiscal policy ineffective. This analysis also explains how pursuit of supply-side policies that result in a financial budget deficit and functional budget surplus can lead to slow growth, rising government debt, and financial instability.
    Date: 2020–06
  3. By: Biagio Bossone (World Bank (US))
    Abstract: Using an ISLM open-economy model based on Keynes’ liquidity preference theory, this article shows that, unless very specific country circumstances hold, Modern Money Theory (MMT) cannot work as an effective and sustainable macroeconomic policy program aimed to achieve and maintain full-employment output through persistent money-financed fiscal deficits in economies suffering from Keynesian unemployment or underemployment. Specific country circumstances include cases where the economy enjoys very high policy credibility in the eyes of the international financial markets or issues an international reserve currency; under such circumstances, the adverse outcomes of MMT policy can be prevented and expansionary demand shocks can be effective. Short of such features, an open and internationally highly financially integrated economy that implements MMT policy persistently would either see its money stock grow unsustainably large or would have to set domestic interest rates to levels that would be inconsistent with the policy objective of resource full employment and that would cause instead economic and financial instability.
    Keywords: Aggregate demand and output; Equilibrium prices; Fiscal deficits; Interest rate; Liquidity Preference Theory, Money; Policy credibility; Stocks and flows.
    JEL: E12 E20 E40 E52 E62
    Date: 2020–10
  4. By: Dick Bryan (The University of Sydney); David Harvie (University of Leicester); Mike Rafferty (The University of Sydney); Bruno Tinel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this chapter, we explore states' strategic use of financial ways of thinking in policy formation, resulting in the "financialization" of many aspects of state policy. Specifically, we argue that, following Randy Martin's formulation, a "social logic of the derivative" is being incorporated into the design of state intervention. Paying particular attention to leverage and liquidity we develop three key propositions, namely, that this derivative logic is changing, and even erasing, earlier distinctions between: (i) the state and financial markets; (ii) those state activities-namely, monetary and fiscal policy-once thought to be formally discrete; and (iii) finance and community or social policy. We illustrate our argument with examples of specific policies and initiatives-such as Quantitative Easing, bank liquidity guarantees, and the social impact bond-drawn primarily from the United States and the United Kingdom.
    Date: 2020
  5. By: Jane E. Ihrig; Scott A. Wolla
    Abstract: The topic of the Federal Reserve’s (the Fed’s) implementation of monetary policy has a significant presence in economics textbooks as well as standards and guidelines for economics instruction. This presence likely reflects the fact that it is the implementation framework that helps ensure that the Fed’s desired level of its policy interest rate is transmitted to financial markets, which helps it steer the economy toward the Congressional dual mandate of maximum employment and price stability. Over the past decade or so, the Fed has purposefully shifted the way it implements monetary policy to an environment with ample reserves in the banking system, and it has introduced new policy tools along the way. This paper shows that, unfortunately, many teaching resources are not in sync with the Fed’s current framework. We review six, 2020 or 2021 edition, principles of economics textbooks, and we find they vary greatly in their coverage of the concepts associated with the way the Fed implements policy today and in the longer run. We provide recommendations on how the authors can improve the next editions of their textbooks. We also review standards and guidelines used by secondaryschool educators. All of these are out of date, and we provide proposals for how these materials can be updated.
    Keywords: Federal Reserve; Monetary policy; Economic education; Introductory economics; Macroeconomics
    JEL: E52 E43 A22 E58
    Date: 2020–10–23

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