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on Post Keynesian Economics |
| By: | Daniyal Khan (Department of Economics, Mushtaq Ahmad Gurmani School of Humanities and Social Sciences, Lahore University of Management Sciences, Pakistan) |
| Abstract: | This paper interprets Pakistan’s monetary system through the lens of a Post Keynesian endogenous money model and argues that the 2022 amendment to the State Bank of Pakistan Act, 1956 has embedded the position of the State Bank of Pakistan (SBP) as an unusually and necessarily accommodationist central bank. On the one hand, this has practical implications. The inability of the Pakistani government to borrow from the SBP has robbed it of a key money creation mechanism and flooded the banking sector with sovereign risk. On the other hand, the replacement of the private sector by the government as the dominant source of credit demand presents an interesting theoretical case in which public credit demand becomes the source of endogenous money creation. |
| Keywords: | Money supply, central banking, financial fragility, State Bank of Pakistan, endogenous money |
| JEL: | E42 E51 E58 B52 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2411 |
| By: | Jose Barrales-Ruiz (Center of Economics for Sustainable Development (CEDES), Faculty of Economics and Government, Universidad San Sebastian, Chile); Codrina Rada (Department of Economics, University of Utah, USA); Rudiger von Arnim (Department of Economics, University of Utah, USA) |
| Abstract: | This paper provides a set of baseline empirical results on Goodwin cycles for the US post-war macroeconomy. Our sample consists of Hamilton-filtered series for nonfarm business sector output and labor share as well as the employment rate. Vector autoregressions (VARs) yield strong evidence for the Goodwin mechanism, i.e. profit-led activity and profit-squeeze distribution, in two (output or employment rate cycle vs. labor share cycle) and three (output, employment rate and labor share cycles) dimensions. We focus solely on the cycle rather than underlying trends, discuss how theory and empirical methods relate, and investigate whether and how the Goodwin mechanism has changed over time. To do so, we estimate split samples with standard recursive VARs for the 'golden age' (GA) and 'neoliberal era' (NE), as well as time-varying parameter VARs. Results indicate (i) overall a persistence of the Goodwin mechanism over the entire post-war period; but (ii) generally less pronounced cyclicality during NE than GA, and (iii) a weakening of the profit squeeze vis-`a-vis the employment rate over time as well as, on balance, a weakening of the profit led regime of both activity variables. |
| Keywords: | Neo-Goodwinian empirics, cyclical growth |
| JEL: | E12 E25 E32 J50 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2410 |
| By: | Gustavo Pereira Serra (Department of Economics, Sao Paulo State University (UNESP), Brazil) |
| Abstract: | This paper analyzes the economic effects of student loans in a segmented educational market. The motivation here draws upon some studies that verify differences in labor income returns and repayment difficulties depending on the characteristics of the institution attended by the student. I put forward a neo-Kaleckian model that considers three types of households: rentiers (RH), lower-skilled workers (LSW), and higher-skilled workers (HSW). Moreover, a cost-minimizing representative firm combines physical capital and labor in effective units in the production process, which also features some labor skill substitution, thus generating a bargaining process between the different worker groups and firms that determines the wage gap. The main result is that, for a debt-financed human capital investment, the conditions that drive long-term economic growth do not necessarily align with those that reduce the wage gap and household debt. In fact, in some cases, widening the wage gap may be a necessary condition for boosting economic activity and human capital accumulation. However, this investment might not reduce the wage gap and could raise concerns about household debt. |
| Keywords: | Household debt, student loans, capacity utilization, human capital |
| JEL: | E12 E22 E24 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2412 |
| By: | Yannis Dafermos (Department of Economics, SOAS University of London) |
| Abstract: | The European Central Bank (ECB) has recently incorporated climate considerations into its operations. In this paper, I assess whether the ECB’s approach is consistent with the challenges of the climate crisis era. I first identify three transformative implications of the climate crisis for central banking. These are that central banks (i) are becoming less able to control inflation via monetary policy tools, (ii) can no longer ignore their responsibility to support decarbonisation, and (iii) cannot rely on traditional risk exposure approaches to prevent financial instability that stems from physical risks. I then analyse to what extent these implications are reflected in the ECB climate actions and plans, showing that there is a very significant gap between the ECB’s 'tinkering around the edges' approach and the central banking challenges posed by the climate crisis. Using post-Keynesian, critical macro-finance and political economy perspectives, I develop the theoretical underpinnings of a climate-aligned central banking paradigm and analyse the implications of this paradigm for the ECB policy toolbox and mandate. I also identify the ideological and political economy factors that prevent the ECB from undergoing a climate paradigm shift. |
| Keywords: | European Central Bank; monetary policy; financial stability; inflation; climate crisis |
| JEL: | E58 Q54 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:soa:wpaper:264 |
| By: | Domenico Delli Gatti; Tommaso Ferraresi; Filippo Gusella; Lilit Popoyan; Giorgio Ricchiuti; Andrea Roventini |
| Abstract: | We present a multi-country, multi-sector agent-based model that extends Dosi et al. (2019) and incorporates the exchange market and its interaction with the real economy. The exchange rate is influenced not only by trade flows but also by the heterogeneous demand for foreign currencies from financial traders. In this respect, the dual nature of the exchange rate is highlighted, acting both as a transmission channel of endogenous shocks and as a source of shocks. Indeed, differing beliefs bring about real-financial non-linear patterns with feedback mechanisms. Simulations show that the introduction of speculative sentiment behaviour reflects important stylised facts of bilateral exchange rate series. Furthermore, the findings indicate that trend-following behaviour substantially increases financial turbulence and contributes to real economic fluctuations. Finally, we highlight the power and limitations of the central bank as an actor in the exchange rate market, showing that while the central bank's interventions can effectively curb boom-bust cycles, their outcomes differ substantially. |
| Keywords: | agent-based model, exchange rate dynamics, endogenous cycles, heterogeneous traders, central bank interventions. |
| JEL: | E3 F41 O4 O41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:frz:wpaper:wp2024_10.rdf |
| By: | Fuad, Syed; Farmer, Michael C. |
| Keywords: | Political Economy, Public Economics, Institutional And Behavioral Economics |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343965 |