nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒02‒01
eight papers chosen by
Karl Petrick
Western New England University

  1. Involuntary unemployment in overlapping generations model due to instability of the economy By Yasuhito Tanaka
  2. Hysteresis and Business Cycles By Valerie Cerra; A. Fatas; Sweta Chaman Saxena
  3. GARCH Analyses of Risk and Uncertainty in the Theories of the Interest Rate of Keynes and Kalecki By Hubert Gabrisch
  4. Supply and demand in Kaldorian growth models: a proposal for dynamic adjustment By Magacho, Guilherme; Spinola, Danilo
  5. Making Ends Meet: The Role of Informal Work in Supplementing Americans’ Income By Katharine G. Abraham; Susan N. Houseman
  6. Build back better: key areas for a post-pandemic recovery By Nick Robins; James Rydge; Nicholas Stern; Sam Unsworth; Anna Valero; Dimitri Zenghelis
  7. Income Inequality and Mortality: A Norwegian Perspective By Bütikofer, Aline; Karadakic, René; Salvanes, Kjell Gunnar
  8. Power & profit: copper mines & steam engines in late 18th century Cornwall By O'Sullivan, Mary

  1. By: Yasuhito Tanaka
    Abstract: The existence of involuntary unemployment advocated by J. M. Keynes is a very important problem of the modern economic theory. Using a three-generations overlapping generations model, we show that the existence of involuntary unemployment is due to the instability of the economy. Instability of the economy is the instability of the difference equation about the equilibrium price around the full-employment equilibrium, which means that a fall in the nominal wage rate caused by the presence of involuntary unemployment further reduces employment. This instability is due to the negative real balance effect that occurs when consumers' net savings (the difference between savings and pensions) are smaller than their debt multiplied by the marginal propensity to consume from childhood consumption.
    Date: 2020–12
  2. By: Valerie Cerra; A. Fatas; Sweta Chaman Saxena
    Abstract: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.
    Keywords: Business cycles;Financial crises;Unemployment;Labor markets;Technology;WP,fiscal policy,learning by doing,physical capital,liquidity trap
    Date: 2020–05–29
  3. By: Hubert Gabrisch (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This study attempts to identify uncertainty in the long-term rate of interest based on the controversial interest rate theories of Keynes and Kalecki. While Keynes stated that the future of the rate of interest is uncertain because it is numerically incalculable, Kalecki was convinced that it could be predicted. The theories are empirically tested using a reduced-form GARCH-in-mean model assigned to six globally leading financial markets. The obtained results support Keynes’s theory – the long-term rate of interest is a nonergodic financial phenomenon. Analyses of the relation between the interest rate and macroeconomic variables without interest uncertainty are thus seriously incomplete.
    Keywords: uncertainty, interest rate, Keynes, Kalecki, GARCH
    JEL: B26 C58 E43 E47
    Date: 2021–01
  4. By: Magacho, Guilherme; Spinola, Danilo
    Abstract: This paper analyses the dynamic adjustment of supply and demand in Kaldorian growth models. We aim at discussing how the growth rate of a country, given by demand constraints, adjust towards the growth rate given by the supply-side, and vice-versa, presenting the necessary conditions for those adjustments. Our main conclusion is that if there are no capital constraints, firms invest to maintain a constant desired level of capital utilization. Depending on specific conditions, however, an economy may face labour constraints, which would require an adjustment mechanism on employment. The Palley-Setterfield approach brings a possible reconciliation to supply- and demand- long-term growth rates. However, we must raise some considerations about the labour market in order to understand the characteristics of this approach. We draw from the critique by McCombie, in which employment adjusts immediately to guarantee equilibrium between supply and demand. We propose reconciliation between the Palley-Setterfield and the McCombie approaches, presenting a model focused in a labour market adjustment, in which both types of adjustments represent extreme cases, discussing the existence and the characteristics of intermediate cases.
    Keywords: economic adjustment; demand-led growth; natural rate of growth; Kaldorian growth models
    Date: 2021–01–24
  5. By: Katharine G. Abraham (University of Maryland); Susan N. Houseman (W.E. Upjohn Institute)
    Abstract: Data from the Survey of Household Economics and Decisionmaking indicate that, over the course of a month, more than one-quarter of adults engage in some informal work outside of a main job. Of these, about two-thirds say that they do informal work to earn money and about one-third say that informal work is an important source of household income. Informal work plays a particularly important role in the household finances of minorities, the less educated, those experiencing financial hardship, those who work part time involuntarily, independent contractors, and the unemployed. Aggregate earnings from informal work are modest but help many households to make ends meet. Informal work cannot compensate, however, for the lack of benefits typical of part-time and contractor work.
    Keywords: informal work, gig work, independent contractors, income adequacy
    JEL: J46 J48
    Date: 2019–11
  6. By: Nick Robins; James Rydge; Nicholas Stern; Sam Unsworth; Anna Valero; Dimitri Zenghelis
    Abstract: Anna Valero and colleagues lay out an action plan for the UK policy response to Covid-19
    Keywords: covid-19,recovery
    Date: 2020–07
  7. By: Bütikofer, Aline (Dept. of Economics, Norwegian School of Economics and Business Administration); Karadakic, René (Dept. of Economics, Norwegian School of Economics and Business Administration); Salvanes, Kjell Gunnar (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: While Norway has experienced income growth accompanied by a large decline in mortality during the past several decades, little is known about the distribution of these improvements in longevity across the income distribution. Using municipalitylevel income and mortality data, we show that the stark income gradient in infant mortality across municipalities in the 1950s mostly closed in the late 1960s. However, the income gradient in mortality for older age categories across municipalities persisted until 2010 and only flattened thereafter. Further, the infant mortality gap between rich and poor Norwegian families based on individual-level data persisted several decades longer than the gap between rich and poor municipalities and only finally closed in the early 21st century.
    Keywords: Mortality; Income Inequality
    JEL: I00
    Date: 2021–01–25
  8. By: O'Sullivan, Mary
    Abstract: In the inaugural issue of Past and Present, Eric Hobsbawm emphasised the complexity of workers’ and capitalists’ attitudes to new machines. Moreover, noting that: “only rarely were new machines immediate and obvious paying propositions”, he suggested the potential of a history of profit to understand the motivations for introducing machines and the consequences of their adoption. This article grapples with Hobsbawm’s “profit puzzle” to understand the implications of the adoption and use of the Boulton & Watt steam engine for capitalists and workers in Cornish copper mines between 1777 and 1791. It shows that the engine’s economic implications for the people who invested in, and worked, the Cornish copper mines were conditioned by a complex relationship between power and profit. Power is assigned three meanings in this analysis: steam power, which was crucial to the mining of copper and the costs of its production; imperial power, given fluctuating demand for copper from different parts of the British Empire; and market power since control over price setting on the British copper market had decisive implications for Cornish mining profits. The article shows that the evolving relationship between power and profit conditioned both the enthusiasm for the B&W engine in Cornwall and the subsequent hostility that Cornish miners and mining adventurers displayed towards the partners. More generally, it suggests the potential of studying the economic and social history of new machines through the lens of profit to understand the motivations for introducing machines and the consequences of their adoption.
    Keywords: Profit, Mining capitalism, New technology, British Empire, Steam engine
    JEL: N00 N73 N83
    Date: 2021

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