nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2023‒11‒13
nine papers chosen by
Karl Petrick, Western New England University

  1. Expectations and the Stability of Stock-Flow Consistent Models By Huub Meijers; Joan Muysken; Giulia Piccillo
  2. Inflation and growth in developing economies: A tribute to Professor Thirlwall By Nell, Kevin
  3. A time-varying finance-led model for U.S. business cycles By Marcio Santetti
  4. Stagnation and cycles in Marx’s Circuit of Capital By Nikolaos Chatzarakis
  5. Sraffian indeterminacy of steady-state equilibria in the Walrasian general equilibrium framework By Naoki Yoshihara; Se Kwak
  6. From the edge to the heart: female employment in 19th-century Italy By Giuliana Freschi
  7. The Political Economy of Economic Policy Advice By Stefan Dercon
  8. Machine learning for economics research: when, what and how By Ajit Desai
  9. The direct and indirect economic consequences of climate damage in poor countries By John Knight

  1. By: Huub Meijers; Joan Muysken; Giulia Piccillo
    Abstract: Expectations are usually introduced in macroeconomic stock-flow consistent models (SFC- models from hereon) in an ad hoc way, without much motivation. Moreover, these are usually very simple forms of expectations, and certainly not some form of rational expectations. The implicit assumption is that expectations do not matter very much in these models. In this paper, we argue that expectations are very important in understanding the way the economy reacts to a shock, since the stability of the economy is dependent on the nature of expectations. We show for instance that for simple expectations, the more backward-looking they are, the more stable the economy tends to become, whereas the opposite is true for enhanced expectations. For that purpose, we use a simple model, based on the models in Godley & Lavoie, 2007. The model includes next to households, firms and government, a financial sector and a foreign sector. First, we analyse the stationary state solution and analyse its properties. We show that this model is only stable when either the tax rate or government debt is not too high. We also point out the self- fulfilling properties of optimism and pessimism in expectations in this model. Next, we show that under “perfect foresight” the model becomes saddle point stable – strong restrictions on taxes and government debt are necessary to guarantee the stability of the model. Under simple naïve expectations the model becomes more stable compared to the stationary state. However, it becomes less stable when naïve expectations are enhanced by the impact of growth. Finally, we show how under fundamentalist and adaptive expectations the stability of the model is affected in an intermediate way. Second, we analyse the adaption process after a shock. Here we find that GDP adjusts very slowly under naïve expectations and faster under stationary and fundamentalist expectations. All in all, we conclude that expectations do matter: the kind of expectations introduced in an SFC model strongly influence both its stability properties and the speed of adjustment to shocks. In our simple model, fundamentalist expectations turn out to have the best combination of stability and speed of adjustment.
    Keywords: expectations, financialisation, wealth accumulation, stock-flow consistent modelling
    JEL: E70 B50 E60 F45 F47
    Date: 2023
  2. By: Nell, Kevin
    Abstract: This paper pays tribute to Professor Thirlwall’s substantive work in growth and development economics by providing a review of his book Inflation, Saving and Growth in Developing Economies (1974b) [hereafter ISGD]. Indeed, the hallmark of a good economics book is whether its theoretical content and empirical predictions made several decades ago remain relevant when assessed against more recent evidence. Thirlwall’s ISGD book exhibits all these qualities. It emphasises the importance of distinguishing between different types of inflation. Structural inflation and, to a lesser extent, cost inflation, should be seen as the inevitable outcomes of the growth and development process, whereas demand inflation may act as a direct stimulus to growth, as predicted by the Kaldor-Thirlwall model of forced saving and the inflation tax model. These theoretical insights remain highly relevant in today’s developing economies. Studies tend to show that inflation thresholds, up until the point where the effect of inflation on growth is positive, tend to be higher in developing economies relative to advanced countries, owing to a combination of structural, cost and demand-side sources of inflation. The analysis further argues that inflationary finance of development, as advanced in ISGD, remains a viable development strategy when open-economy constraints are considered.
    Keywords: Developing economies; inflation; investment; growth; saving; Thirlwall; threshold
    JEL: O11 O23 O47
    Date: 2023–09–01
  3. By: Marcio Santetti
    Abstract: This paper empirically assesses predictions of Goodwin's model of cyclical growth regarding demand and distributive regimes when integrating the real and financial sectors. In addition, it evaluates how financial and employment shocks affect the labor market and monetary policy variables over six different U.S. business-cycle peaks. It identifies a parsimonious Time-Varying Vector Autoregressive model with Stochastic Volatility (TVP-VAR-SV) with the labor share of income, the employment rate, residential investment, and the interest rate spread as endogenous variables. Using Bayesian inference methods, key results suggest (i) a combination of profit-led demand and profit-squeeze distribution; (ii) weakening of these regimes during the Great Moderation; and (iii) significant connections between the standard Goodwinian variables and residential investment as well as term spreads. Findings presented here broadly conform to the transition to increasingly deregulated financial and labor markets initiated in the 1980s.
    Date: 2023–10
  4. By: Nikolaos Chatzarakis (Department of Economics, New School for Social Research, USA)
    Abstract: Marx’ circuit of capital describes the circular process of transformation of money to commodities and of commodities to money, the unified process of capital turnover from production to exchange. It becomes the prime tool Marx used to analyze the process of labor, the reproduction and accumulation of capital, and the possibility and actuality of crises in the capitalist mode of production. In a paper in 1982 and two books is 1986, Foley formulated a mathematical model for the circuit of capital. In the present work, we reformulate this model into a closed and autonomous dynamical system and we proceed to analyze its phase space; not surprisingly, this model resembles the famous epidemiological models, used to describe a similar circular process for the spread of a disease. The equilibrium points of the system reveal the cases for a ‘normal’ phase of expansion, as well as for an ‘excess capital’ crisis; the shift of stability from the one to the other reveals a possibility theory of crisis as a secular stagnation process, while the shift from stability to cycles reveals an actuality theory of short-run fluctuations due to ‘excess commodities’ and ‘excess money’.
    Keywords: Circuit of capital, capital accumulation, economic crisis, financialization
    Date: 2023–10
  5. By: Naoki Yoshihara (University of Massachusetts Amherst); Se Kwak (University of Massachusetts Amherst)
    Abstract: In contrast to Mandler’s (1999a; Theorem 6) generic determinacy of steady-state equilibria, we first show that any non-trivial steady-state equilibrium is indeterminate under a general overlapping generation economy with a fixed Leontief technique. We also check that this indeterminacy is generic. These results are obtained by explicitly introducing a general model of every generation’s utility function and individual optimization program to the overlapping generation economy, which also verifies that Mandler’s (1999a; section 6) claim on generic determinacy is invalid. We also argue the distinctiveness of our results in comparison with the standard literature, like Calvo (1978), of overlapping generation indeterminacy.
    Keywords: Sraffian indeterminacy, functional income distribution, general equilibrium framework
    JEL: B51 D33 D50
    Date: 2023–05
  6. By: Giuliana Freschi
    Abstract: Women have long been at the edge of economic history. According to Humphries (1991) and Sharpe (1995), shifting them from there ''to the heart'' goes into stages. The first stage involves recognising the extent to which the role of women has been neglected. The second stage aims to integrate women in the mainstream of economic history, with potentially revolutionary results. As stated in the introduction of the present book, the methodological challenge lies in proving that it is possible to uncover the economic culture not only in women’s writings, as many did not leave behind written records, but also in their actions. Therefore, this book goes beyond the scope of Humphries and Sharpe by placing women not only at the core of economic history but also at the centre of the economic culture of their times. The initial part of the book focuses on women who have left traces of their economic thought, not through their writings, but through their extraordinary experiences. It explores the stories of women in business, female entrepreneurs, and their untold or forgotten narratives. The follwing sections of the book will delve into the role of women in education, politics, and economics. These sections rely on sources that have not been traditionally used to study women's work, such as correspondence or unprinted material, to reconstruct the intellectual history of women who contributed to the history of economics and the economy. This portion of the book delves into debates and patterns regarding women in the labour market, utilising often overlooked sources. The present chapter reflects on the significance of re-evaluating the role of ordinary, ''everyday'' women's work in the economic development of countries (Bateman 2019). It contributes to the ongoing discussion on female labour force participation in the past and concludes that when work was available, women worked. In the applications for poor relief in the city of Florence between 1810 and 1812, families had to describe the occupational status of all their members. Hence, the applications represent a valuable source to explore female work. For instance, Maddalena and Elisabetta worked with silk when they ''had it'' or when they ''could''. The 26-year-old daughter of one of the households requesting the poor relief, bleached ''when she found it'', while her younger sister was engaged in a ''little job'' (il lavorino). Thus, it aligns with a strand of the debate that emphasises the importance of demand factors, rather than supply factors, in determining women's employment in historical perspective. However, providing new estimates of female employment in the past is outside the scope of this chapter. The main contribution is that, alongside with demand factors, also cultural ideology had a pivotal role. Thus, I focus on the tendency of women to report their occupation, and how the reporting patterns varied over time, across locations, and social classes.
    Keywords: Italy; Labour; Gender; Feminist Economics.
    Date: 2023–11–02
  7. By: Stefan Dercon
    Abstract: This paper examines the political economy of economic policy advice. It offers a framework for assessing how to maximize the economic development impact of advice, allowing for the political incentives of those in power. It argues for a ’second best’ analysis that looks to maximize development impact given political incentives and shows how standard advice, as often given by researchers or by advisors in government or from international organisations such as World Bank and IMF may not be this second best. Furthermore, it looks at the implications of treating political constraints as endogenous. Some examples illustrate how research and advice can be more impactful taking into account local political economy conditions.
    Keywords: economics , Africa , political economy , policy advice
    Date: 2023
  8. By: Ajit Desai
    Abstract: This article reviews selected papers that use machine learning for economics research and policy analysis. Our review highlights when machine learning is used in economics, the commonly preferred models and how those models are used.
    Keywords: Central bank research; Econometric and statistical methods; Economic models
    JEL: A1 A10 B2 B23 C4 C45 C5 C55
    Date: 2023–10
  9. By: John Knight
    Abstract: The predictions of the adverse effects of greenhouse gas emissions on climate change are now accepted. Somewhat less attention has been given to the economic, social, and political consequences. The three interact: the former will have social and political effects, which in turn will harm economies and economic well-being. This analysis of poor countries draws on much recent evidence and various projections. Climate damage contributes to internal political instability and conflict. There is a risk that poor countries will be driven down economically, so reducing the capacity of their governments: some will become fragile states. Internal migration is likely to become a central policy issue. However, international migration will also grow. Climate damage will drag countries into both cooperation and conflict with each other. The effects on sending countries, contiguous countries, and destination countries are examined. This scenario presented is predictive but should be taken as a warning.
    Keywords: climate change , international migration , domestic and international conflicts , global warming , displacement of population
    Date: 2023

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