nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2023‒02‒13
three papers chosen by
Karl Petrick
Western New England University

  1. Post-Keynesian growth theory and the supply side: a feminist-structuralist approach By Mark Setterfield
  2. Income Distribution and Economic Cycles in an Open Economy Supermultiplier Model By Ariel Dvoskin; Matías Torchinsky Landau
  3. Monetary Policy and Racial Inequality By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel

  1. By: Mark Setterfield (Department of Economics, New School for Social Research, USA)
    Abstract: Post-Keynesian macrodynamics is designed to extend the role of demand in the determination of real economic outcomes beyond the short run. The purpose of this paper is to highlight the importance of supply-side considerations in demand-led growth. Building on existing features of the supply side in Post-Keynesian growth theory, three new developments are highlighted: human capital accumulation, the social reproduction of labour, and the supply-side link between distribution and growth. These new developments are shown to yield new insights into the established themes of reconciling demand and supply in the theory of long-run growth, and the relationship between distribution and growth. Furthermore, the feminist-structuralist model used to explore the social reproduction of labour is shown to be a potential general framework for synthesizing these insights.
    Keywords: Demand-led growth, potential rate of growth, technical change, human capital, human capacities, care-giving
    JEL: B54 E11 E12 O41
    Date: 2023–01
  2. By: Ariel Dvoskin (Central Bank of Argentina - CONICET); Matías Torchinsky Landau (CONICET)
    Abstract: Supermultiplier growth models show that higher autonomous spending leads to stronger economic growth, implying that greater government spending can boost economic activity (Freitas and Serrano, 2015). However, several authors highlighted the limits of this strategy, arguing that increased spending might lead to unsustainable debt accumulation patterns. This is particularly important for small open economies, where growth requires imports that must be paid with foreign currency, which can lead to growing external indebtedness (Thirlwall, 1979; Nikiforos, 2018; Oreiro and Costa Santos, 2019). We build a structuralist supermultiplier model for a small open economy with two sources of autonomous demand, government expenditures and exports. We account for the dynamics of external indebtedness (determined by economic activity), wage growth (related to wage resistance) and the exchange rate (determined by the Central Bank but limited by international reserves constraints). We find that, in the long run, there is a limit for government spending: its growth rate cannot exceed that of exports without generating an external crisis. However, there is a strong role for public policy: there is nothing that automatically leads the economy to its maximum growth rate compatible with the external constraint to growth, and if government expenditures grow less than exports, the economy will not completely exploit its external space. But the main contribution of the paper is in the short-run analysis, where we find an additional restriction, related to income distribution. Since higher wages increase consumption and economic activity, they also require more imports, potentially leading to unsustainable debt growth. Therefore, there is a maximum real wage compatible with external equilibrium (Canitrot, 1983). If unions’ demand wages are lower than the external equilibrium wage, the economy will be stable, but will also achieve unnecessarily low output and real wages. On the contrary, if target wages exceed those compatible with external equilibrium, the economy displays economic cycles between capacity utilisation, income distribution and indebtedness, marked by permanent inflation. We show that, in the short run, the government can optimize fiscal and monetary policies to maximise output given the external space, but that in the long run, economic growth requires not only domestic spending but also increasing exports to be sustainable.
    Keywords: Sraffian supermultiplier, Thirlwall's law, fiscal policy, income distribution, structuralism
    JEL: E11 E31 E32 F43 O41
    Date: 2022–06
  3. By: Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
    Abstract: Racial income and wealth gaps in the United States are large and persistent. Recently, central bankers and politicians have put forward the suggestion that monetary policy can be used to reduce these inequalities. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Over multi-year horizons, we find that while accommodative monetary policy tends to reduce racial unemployment and thus earnings differentials, it exacerbates racial wealth differentials, which implies an important tradeoff for policymakers.
    Date: 2021–02

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