Template-Type: ReDIF-Paper 1.0 Author-Name: Marcos A. L. de Campos Author-Name-First: Marcos A. L. Author-Name-Last: de Campos Author-Name: Jose Luis Oreiro Author-Name-First: Jose Author-Name-Last: Oreiro Author-Name: Kalinka Martins da Silva Author-Name-First: Kalinka Martins Author-Name-Last: da Silva Title: The impact of trade liberalisation and exchange rate undervaluation on exports, imports, and trade balance of Latin American countries (1970-2019) Abstract: This article aims to analyse the impact of exchange rate levels and trade liberalization that occurred in the 1980s and 1990s on the exports, imports, and trade balances of Latin American countries over the last five decades. The basic idea is to update the study conducted by A. Santos-Paulino and A. P. Thirlwall in 2004, which aimed to test the hypothesis that trade liberalizations in developing countries lead to a deterioration of the trade balance by boosting imports more than exports. Additionally, this analysis introduces the effect of the exchange rate on the trade balance through the currency undervaluation index created by Rodrik (2008). Data from seven Latin American countries between 1970 and 2019 were selected to estimate econometric models for exports, imports, and the trade balance. Although the inherent uniqueness of each Latin American economy makes it challenging to make general conclusions, the results show that currency undervaluation has a strong effect on export performance, and they also support the idea that trade liberalisation reforms generate imbalances in the trade balance in the long run. This negative effect of trade liberalization, however, can be offset by a proper exchange rate policy that aims to set an undervalued exchange rate. If trade liberalization is combined with a competitive exchange rate, then an increase in exports growth and in the trade balance as a ratio to GDP will be consequence of this smart combination of trade and exchange rate policies. Length: 21 Creation-Date: 2024-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2408.pdf File-Format: Application/pdf File-Function: First version, 2024 Number: PKWP2408 Classification-JEL: F10, F15 Keywords: Trade Liberalization, Real Exchange Rate and Trade Balance Handle: RePEc:pke:wpaper:PKWP2408 Template-Type: ReDIF-Paper 1.0 Author-Name: Luke Petach Author-Name-First: Luke Author-Name-Last: Petach Title: Assessing the Political Aspects of Full Employment: Evidence from Strikes and Lockouts Abstract: Using monthly state-level data on work stoppages from the Bureau of Labor Statistics (BLS) and state-level labor market data from the Current Population Survey (CPS) this paper estimates the effect of state-level labor market conditions on strike activity from 1993 to 2023. Panel fixed-effects estimates suggest a one percentage-point increase in the unemployment rate reduces the number of work stoppages involving 1,000 or more workers (per million) by approximately 14%. The fixed-effects estimates are supported by a propensity-score based specification that exploits the differential timing of national recessions across US States. Entering a recession is negatively related to state-level strike activity as measured by both work stoppages and the share of employed workers reporting an absence from work due to a labor dispute. The results in this paper provide empirical support for Kalecki (1943)’s argument regarding the “political aspects of full employment”: weak labor markets reduce direct action by labor, thereby providing a rationalization for capitalist opposition to full employment policy. Length: 27 Creation-Date: 2024-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2407.pdf File-Format: Application/pdf File-Function: First version, 2024 Number: PKWP2407 Classification-JEL: D33, E11, J52 Keywords: Michal Kalecki, Strikes, Work Stoppages, Labor Relations, Business Cycles Handle: RePEc:pke:wpaper:PKWP2407 Template-Type: ReDIF-Paper 1.0 Author-Name: Peter Skott Author-Name-First: Peter Author-Name-Last: Skott Title: Conflict inflation: Keynesian path dependency or Marxian cumulation? Abstract: Notions of conflict inflation have been central to neo-Marxian and post-Keynesian economics. There are tensions, however, within the Marxian/post-Keynesian camp. Post-Keynesians emphasize weak feedback effects between price and wage inflation, thereby preserving the importance of aggregate demand in the determination of output and employment in the medium and long run. Like Kalecki (1943), Marxists typically suggest, on the contrary, that if unemployment is kept low, cumulative increases in workers. power and militancy imply severe limitations of aggregate demand policy in the long run. The paper discusses these rival perspectives and their implications, suggesting that (i) valid Marxian concerns are likely to derail ambitious reform programs that rely on fiscal expansion, (ii) Kalecki’s analysis failed to recognize the centrality of inflation for aggregate demand policy and the multidimensional character of class conflict, and (iii) rather than focus on the wage struggle, labor movements may benefit from prioritizing political and institutional change. Length: 31 Creation-Date: 2024-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2406.pdf File-Format: Application/pdf File-Function: First version, 2024 Number: PKWP2406 Classification-JEL: E31 Keywords: wage aspirations, fairness norms, worker militancy, hysteresis, welfare state, de-commodifcation Handle: RePEc:pke:wpaper:PKWP2406 Template-Type: ReDIF-Paper 1.0 Author-Name: Biagio Bossone Author-Name-First: Biagio Author-Name-Last: Bossone Title: Keynesian Policy Space in "Globalized" Economies Abstract: This article shows that in highly internationally financially integrated ("globalized") economies, policymakers' ability to implement effective expansionary macroeconomic policies, referred to in the article as "Keynesian policy space," is influenced by the portfolio decisions of a specific group of investors known as "Global investors." This conclusion arises from a two-country, open-economy model in which Global investors allocate capital internationally based primarily on their perception of the policy credibility of the countries where they invest their managed wealth. In countries that Global investors deem highly credible, expansionary macroeconomic policies prove effective in terms of stimulating output and resource employment. Conversely, in countries perceived as having weak credibility, the portfolio decisions of these investors may undermine the effectiveness of such policies. Consequently, the anticipated real effects of these policies may dissipate into domestic currency depreciation and higher inflation. Following the derivation and evaluation of this conclusion, the article explores various options for countries to establish and maintain Keynesian policy space. Length: 50 Creation-Date: 2024-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2405.pdf File-Format: Application/pdf File-Function: First version, 2024 Number: PKWP2405 Classification-JEL: E31, E40, E50, E62, F31, G15, H30 Keywords: credibility; exchange rate; financial integration; global investor; inflation; intertemporal budget constraint; macro-policies Handle: RePEc:pke:wpaper:PKWP2405 Template-Type: ReDIF-Paper 1.0 Author-Name: Eckhard Hein Author-Name-First: Eckhard Author-Name-Last: Hein Author-Name: Hagen M. Krämer Author-Name-First: Hagen M. Author-Name-Last: Krämer Title: Kalecki’s and Keynes’s Perspectives on Achieving and Sustaining Full Employment in a Global Economy Abstract: This paper examines the challenges of achieving and sustaining full employment in a global economy, as discussed by Michał Kalecki and John Maynard Keynes. Its aim is to analyse the common perspectives and differences between Kalecki and Keynes on this issue. The paper first examines the basic views of Kalecki and Keynes on long-term employment issues. This contains comparing their respective considerations of political economy constraints to full employment. Then Kalecki’s and Keynes’s views on the constraints in open economies and the economic policy strategies they proposed are assessed. The paper points out Kalecki’s advocacy for public deficit spending and income redistribution for achieving full employment, which slightly differs from Keynes's emphasis on stimulating investment, including partial socialisation. Regarding power relations, Kalecki focussed on the conflict between capital and labour, calling for ‘crucial reforms’ like nationalisation of key industries, while Keynes highlighted the conflict between financial and industrial capital. Both shared a nuanced view of globalisation, but differences emerge when discussing the Keynes Plan. Keynes aimed to prevent deflation in the international monetary system, while Kalecki stressed long-term international lending for sustaining full employment. Both economists underscored the importance of international conditions for achieving full employment, emphasizing the need for a balance of payments equilibrium over strictly balanced current accounts. Length: 24 Creation-Date: 2024-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2404.pdf File-Format: Application/pdf File-Function: First version, 2024 Number: PKWP2404 Classification-JEL: E11, E12, E61, F41 Keywords: Full employment, global economy, John Maynard Keynes, Michał Kalecki Handle: RePEc:pke:wpaper:PKWP2404 Template-Type: ReDIF-Paper 1.0 Author-Name: Riccardo Zolea Author-Name-First: Riccardo Author-Name-Last: Zolea Title: An introduction to the distributional role of bank credit to workers in a surplus approach framework Abstract: The Classics and Marx, but also more recent contributions inspired by them, assume that the interest rate is a part of the profit rate. Over time, however, credit towards consumption and for the purchase of housing by workers has taken on greater and greater economic weight. This paper therefore aims to study this issue from a theoretical point of view, analysing its premises and implications. After investigating the necessary conditions on both the demand side (workers) and the supply side (banks), an attempt is made to analyse the distributional effects of a change in the interest rate. The results appear rather complex and difficult to interpret, suggesting a certain difficulty in identifying a simple dynamic that can be generalised to any economic context. Length: 17 Creation-Date: 2024-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2403.pdf File-Format: Application/pdf File-Function: First version, 2024 Number: PKWP2403 Classification-JEL: E11, E40 Keywords: surplus approach; interest rate; mortgage Handle: RePEc:pke:wpaper:PKWP2403 Template-Type: ReDIF-Paper 1.0 Author-Name: Joel Rabinovich Author-Name-First: Joel Author-Name-Last: Rabinovich Author-Name: Niall Reddy Author-Name-First: Niall Author-Name-Last: Reddy Title: Corporate Financialization: A Conceptual Clarification and Critical Review of the Literature Abstract: Corporate financialization (CF) comprises a major subfield of financialization studies centered on the belief that significant changes in corporate governance and business models have been driven by financial imperatives, profoundly impacting investment habits, labor policies, organizational practices, and the distribution of revenues. Experiencing explosive growth in recent years, the field has become mired in conceptual ambiguity, mirroring problems with financialization studies as a whole. While seeking to restore some conceptual clarity and clearly delineate the boundaries of the concept, this paper attempts a comprehensive review of empirical work on CF. At the core of the field we identify four sub-fields, each addressing distinct aspects of the way business models have become financialized under the influence of shareholder value principles. Our dissection of the literature shows, however, that these theories mostly remain under substantiated. The connection of financialization strategies to key outcomes of interest, like declining investment and rising inequality, remains nebulous in most cases. Beyond this, we identify key weaknesses in the way shareholder value orientation - the causal lynch pin of CF accounts - has been theorized. The field as a whole has paid insufficient attention to the variegated and uneven nature of the shareholder revolution, which has prevented a single uniform set of governance principles from diffusing. The critique concludes with a call for caution and nuance in employing the corporate financialization framework, emphasizing its role as just one part of a multifaceted transformation within capitalism. Alongside it, other pivotal structural forces, such as intangibilization, monopolization, and globalization, demand equal attention. The overarching aim of this review is to urge greater clarity, conceptual discipline, and a holistic perspective in future investigations into the dynamics of financialized capitalism. Length: 34 Creation-Date: 2024-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2402.pdf File-Format: Application/pdf File-Function: First version, 2024 Number: PKWP2402 Classification-JEL: L20 Keywords: financialization, corporate governance, firm strategy, short-termism Handle: RePEc:pke:wpaper:PKWP2402 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Author-Name: Danilo Spinola Author-Name-First: Danilo Author-Name-Last: Spinola Author-Name: Giuliano Toshiro Yajima Author-Name-First: Giuliano Toshiro Author-Name-Last: Yajima Author-Name: Gabriel Porcile Author-Name-First: Gabriel Author-Name-Last: Porcile Title: Pasinetti, debt sustainability and (green) structural change at the time of global finance: An emerging and developing countries’ perspective Abstract: This paper studies the relationship between financial integration, external debt sustainability, and fiscal policy space in emerging and developing (EDE) countries. We do so by applying Pasinetti’s “geometry of debt sustainability” to EDE countries and analysing how it is shaped by exposure to global financial cycles. Through the lenses of Pasinetti’s theoretical framework, we study whether global finance opens “windows of opportunities” or creates more constraints for EDE countries in offering fiscal support for structural changes, including green structural transformations. This analysis is crucial for tackling the pressing issue of the climate crisis. We suggest EDE countries may face a “gridlock”. Global finance and pressures to keep external debt sustainable make them struggle to maintain vital public investment and enact counter-cyclical fiscal actions. Lack of fiscal space in turn exacerbates technological backwardness, which feeds back in the form of more binding external constraints and tighter “surveillance” by international creditors. We support our theoretical analysis with an econometric study over a sample of 55 countries from 1980-2018. Capital controls and external macroprudential policy emerge as fundamental policies enabling EDE countries to adeptly manoeuvre through debt challenges without falling into the pitfalls of stagnation and enduring technological underdevelopment. Length: 23 Creation-Date: 2024-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2401.pdf File-Format: Application/pdf File-Function: First version, 2024 Number: PKWP2401 Classification-JEL: F65, O14, O23 Keywords: Financial globalisation, fiscal space, structural change Handle: RePEc:pke:wpaper:PKWP2401 Template-Type: ReDIF-Paper 1.0 Author-Name: Saarthak Sharma Author-Name-First: Saarthak Author-Name-Last: Sharma Title: Quantifying Non-Tariff Barriers and Assessing their impacts on India’s key Agricultural exports using a Gravity Model Abstract: It is certain that the new world order in international trade restriction for domestic industry protection are not only tariffs but also various non-tariff barriers. As a matter of fact, identifying and measuring the extent of such barriers is far harder, whereas for tariffs, its simply, a numerical value that can be used to estimate the loss of trade and even the loss of welfare to an extent. However, this is not possible for non-tariff barriers simply due to their complexity and intertwining nature with other laws of the particular country as well as with its governmental structure. Thus, measuring such barriers and the extent to which such barriers cause damage to trade is extremely hard to measure accurately. Despite the hardships, several studies have been undertaken to analyse the impact of such barriers on exports of nations. This study aims to conduct a similar analysis for India, keeping in mind the variables that may affect India’s exports, there shall be an attempt to keep the model as explanatory and dynamic as possible. The study will consider data for a period of 10 years, 2010-2020, since the purpose is to judge and compare the impact of Non-tariff barriers relative to tariffs, all the variables included in the model will be considered with the view that they contribute more to the explanatory power of the model and are impacted by or are impactful on non-tariff barriers. The methodologies that are used, as well as the expected results, are discussed in the subsequent sections. Length: 23 Creation-Date: 2023-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2316.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2316 Classification-JEL: F13, F14 Keywords: World Trade Organization, Non-Tariff Barriers, Tariffs, HS-Codes, Gravity Model Handle: RePEc:pke:wpaper:PKWP2316 Template-Type: ReDIF-Paper 1.0 Author-Name: Zico Dasgupta Author-Name-First: Zico Author-Name-Last: Dasgupta Title: The Theoretical Superiority of the Compensation view in Explaining Monetary Policy Autonomy Abstract: This paper compares three theoretical frameworks that attempt to explain the phenomenon of weak relationship between foreign and domestic interest rate under fixed or manage-float exchange rate regimes - the Mundell-Fleming (MF) model without sterilization and the Mundell-Fleming model with sterilization (MFS) and the Compensation view. It argues for the theoretical superiority of the Compensation view as it can explain monetary policy autonomy under less restrictive assumptions. The paper outlines the underlying models of these frameworks and highlights the centrality of commercial bank loans in the Compensation view. I discuss the trend in India’s interest rates which is consistent with the Compensation view. Length: 32 Creation-Date: 2023-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2315.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2315 Classification-JEL: E43, E51, E52, E58 Keywords: Monetary Policy, Endogenous money, Mundell-Fleming, Compensation view, Sterilization Handle: RePEc:pke:wpaper:PKWP2315 Template-Type: ReDIF-Paper 1.0 Author-Name: Viktor Skyrman Author-Name-First: Viktor Author-Name-Last: Skyrman Title: An Antidote for Securitization? How Covered Bonds Fuel Household Indebtedness in Sweden’s Financialized Growth Model Abstract: This article advances the analysis on how the covered bond, a financial instrument specialized for mortgage lending, contributes to household financialization. By providing financial systems with relatively safe debt instruments and letting banks to efficaciously draw credit on international debt markets, ‘…covered bonds allow banks to lend not only more, but also more safely’ (European Commission, 2018). Zooming in on Sweden, one of Europe’s most financialized economies, the article explores why and how covered bonds were institutionalized and how the instrument has affected mortgage lending, securitization and Sweden’s overall financial system. The covered bond concept was imported by Swedish lobbyists via a European banking forum in the late 1980s. While covered bond legislation were temporarily vetoed by central bankers, instead preferring an advanced securitization industry to develop, lengthy bank lobbying and overall developments in Europe’s political economy convinced policymakers that covered bond legislation was essential to avoid deteriorating financial market competition vis-à-vis other EU member states. All in all, covered bonds have on the one hand halted securitization to develop in Sweden. Meanwhile, by increasing the credit supply, covered bonds have on the other hand proved to be an efficient instrument for household financialization. Length: 34 Creation-Date: 2023-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2314.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2314 Classification-JEL: E02, G18, G23, O52 Keywords: household financialization, European financial integration, banking, debt finance, regulation, covered bonds, securitization Handle: RePEc:pke:wpaper:PKWP2314 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Kemp-Benedict Author-Name-First: Eric Author-Name-Last: Kemp-Benedict Title: A test of “turbulent arbitrage” Abstract: Anwar Shaikh's theory of turbulent arbitrage predicts that incremental profit rates will tend to equalize across sectors, albeit in a noisy and turbulent fashion. He supports the claim with plots of time series of average and incremental profit rates for US sectors. This paper applies a Kolmogorov-Smirnov two-sided test to pairs of sectoral profit rate time series, drawing on Shaikh's data. The results support Shaikh's claim. Length: 23 Creation-Date: 2023-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2313.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2313 Classification-JEL: C14, E12, E22 Keywords: turbulent arbitrage; real competition; profit rates; Kolmogorov-Smirnov test Handle: RePEc:pke:wpaper:PKWP2313 Template-Type: ReDIF-Paper 1.0 Author-Name: Daniel Moura da Costa Teixeira Author-Name-First: Daniel Moura Author-Name-Last: da Costa Teixeira Author-Name: Helder Lara Ferreira Filho Author-Name-First: Helder Lara Author-Name-Last: Ferreira Filho Author-Name: Jose Luis Oreiro Author-Name-First: Jose Author-Name-Last: Oreiro Title: Environmental Sustainability and the Economic Complexity: Policy Implications for a New Developmentalism Strategy Abstract: For most of human history, the economic system has operated according to the environment’s support capacity, but this relationship changed radically after the Industrial Revolution. Since then, the economy has achieved sufficiently great scale and scope to make the rate of natural resource and energy consumption as well as waste generation rival the environment’s support capacity. Hence, sustainable development requires the economy to expand at diminishing rates of natural resource consumption and pollutant emissions, including GHGs, as well as allow the long-term restoration of natural capital stocks. This purpose is only achieved through an Ecological Structural Change, which doesn’t occur spontaneously due to several market failures and risks involved in investments in cleaner technologies and innovations, requiring a set of public policies. Therefore, this paper discusses the relationship between environmental sustainability, ecological structural change, economic complexity, and the implications for environmental policies in an eco-developmental (and broader) strategy. The insights obtained point out that it is the State's role to coordinate and provide information during policy management, acting as an identifier of opportunities for diversification of the economy that contribute to environmental sustainability. Besides that, to avoid corruption and rent-seeking processes, it is important to establish a proper institutional framework for effective interaction between the market and public sectors, mechanisms for transparency and accountability as well as the national eco-developmental strategy must have a high status in the governmental agenda Length: 23 Creation-Date: 2023-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2312.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2312 Classification-JEL: Q01, Q32, Q55, Q56 Keywords: Green New Developmentalism; Climate Change; Forest Change; Economic Complexity; Policy Coordination Handle: RePEc:pke:wpaper:PKWP2312 Template-Type: ReDIF-Paper 1.0 Author-Name: Zdravka Todorova Author-Name-First: Zdravka Author-Name-Last: Todorova Title: Social Processes of Oppression in the Stratified Economy and Veblenian Feminist Post Keynesian Connections Abstract: Conceptions of social stratification and oppression should be central to Post Keynesian inquiry. The article takes a Veblenian feminist view to discuss aspects of oppression in economies of stratification, and outlines connections to areas of Post Keynesian economics. The article is structured around “five faces of oppression” delineated by political theorist Iris Young: exploitation, violence, powerlessness, cultural imperialism, and marginalization. The paper reframes those based on a conception of evolving social processes and diverse economic relations, and employs Veblen’s theory of surplus and stratification, which has a broad understanding of domination that goes beyond capital accumulation. The article provides illustrations of these interconnected aspects of oppression, and discusses how each is co-opted today. The article presents specific connections to Post Keynesian economic analysis and concludes by highlighting the potential of Post Keynesian economics for social justice. Length: 31 Creation-Date: 2023-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2311.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2311 Classification-JEL: B52, B54, E12, Z13, Z18 Keywords: Stratification; Oppression; Thorstein Veblen; Feminist Post Keynesian Economics; Social Processes Handle: RePEc:pke:wpaper:PKWP2311 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Author-Name: Eugenio Caverzasi Author-Name-First: Eugenio Author-Name-Last: Caverzasi Author-Name: Alberto Russo Author-Name-First: Alberto Author-Name-Last: Russo Title: Same old song: On the macroeconomic and distributional effects of leaving a Low Interest Rate Environment Abstract: This paper analyzes the macroeconomic and distributional implications of central banks’ decisions to raise interest rates after a prolonged period at near the Zero Lower Bound (ZLB). The main goal of our study is to assess the interaction between monetary policy, inequality, and financial fragility, in a financialized economic system. Financialization is here portrayed as the presence in the economy of complex financial products, i.e., asset-backed securities, produced via the securitization of banks’ loans. We do so in the context of a hybrid Agent-Based Model (ABM). We first compare the prevailing macroeconomic and financial features of a low interest rate environment (LIRE) with respect to a “Great Moderation”(GM)-like setting. As expected, we show that LIRE tends to stimulate faster growth and higher employment, and to reduce income and wealth inequality, as well as (poor) households’ indebtedness. Consistent with existing empirical literature, this comes at the cost of higher inflation and some signs of financial system’s fragility, i.e., lower banks’ profitability and Capital Adequacy Ratio (CAR), and higher “search for risk” given by credit extension to poorer households. We then show that increases in the central bank’s policy rate, as motivated by the central bank’s willingness to reduce inflation, effectively curb price dynamics and accomplish with central bank’s inflation targeting mandate. Higher interest rates also improve commercial banks’ CAR and profitability. However, they also cause a pronounced increase in non-performing loans (stronger than what possibly observed in a GM scenario) and some worrisome macro-financial dynamics. In fact, higher interest rates give rise to higher households’ and overall economy indebtedness as allowed by wealthier households’ demand for high-yield complex financial products and mounting securitization. We finally show how financialization structurally changes the functioning of the economy and the behavior of central banks. Financialization actually contributes to create a (private sector) debt-led economy, which becomes structurally more resistant to central bank’s attempts to control inflation. Central bank’s reaction in terms of higher interest rates could likely come with perverse distributional consequences. Length: 23 Creation-Date: 2023-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2310.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2310 Classification-JEL: E24, E44, E52 Keywords: Low interest rate environment, Contractionary monetary policy, Securitization Handle: RePEc:pke:wpaper:PKWP2310 Template-Type: ReDIF-Paper 1.0 Author-Name: Rafael Wildauer Author-Name-First: Rafael Author-Name-Last: Wildauer Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Author-Name: Adam Aboobaker Author-Name-First: Adam Author-Name-Last: Aboobaker Author-Name: Alexander Guschanski Author-Name-First: Alexander Author-Name-Last: Guschanski Title: Energy Price Shocks, Conflict Inflation, and Income Distribution in a Three-sector Model Abstract: The paper presents a model of conflict inflation to investigate the distributional effects of energy price shocks. We argue that periods of high inflation are always periods of significant redistribution of income. We analyse how such redistribution occurs along two dimensions: between workers and firms and between sectors of the economy. To study the distributional outcomes of the recent inflationary episode, we build a three-sector model comprising a domestic energy sector which provides inputs for a goods and a services sector. The model is calibrated to US sectoral data with the Method of Simulated Moments. While energy prices are set internationally, non-energy prices and nominal wages are set by firms and workers, giving rise to conflicting claims over the distribution of income. We consider three shocks that trigger inflationary distributional conflict: an energy price shock combined with demand and supply shocks to the goods sector. We find that the recent inflationary episode constitutes a price-wage rather than a wage-price spiral. The combined shocks induce non-energy firms to raise prices, which undermines real wages, and redistributes income towards firms. The sectoral demand shift towards goods in combination with pandemic-related supply bottlenecks further raises mark-ups, accelerating inflation and leading to divergence in sectoral profit margins. We compare three anti-inflationary policies: redistributing windfall profits to workers, nominal wage restraint, and aggregate demand contraction through monetary or fiscal policy. The redistribution of profits via a windfall tax is most effective in reducing inflation without reinforcing reductions in employment and labour shares. Length: 30 Creation-Date: 2023-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2309.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2309 Classification-JEL: E24, E31, J30 Keywords: energy price shocks, inflation, income distribution, multi-sector model, wageprice spiral, price-wage spiral Handle: RePEc:pke:wpaper:PKWP2309 Template-Type: ReDIF-Paper 1.0 Author-Name: Michael Cauvel Author-Name-First: Michael Author-Name-Last: Cauvel Author-Name: Miguel Alejandro Sanchez Author-Name-First: Miguel Alejandro Author-Name-Last: Sanchez Title: Life Expectancy and the Labor Share in the U.S. Abstract: We estimate the relationship between life expectancy and the labor share in the U.S., finding a positive and significant relationship. We then explore eight potential channels through which the labor share may impact life expectancy: social capital, policy, mental health, stress, crime, childhood adversity, healthcare utilization, and education. Our results suggest that healthcare utilization and education are two important channels linking life expectancy and the labor share. We expect that these relationships are driven by dynamics related to Baumol's cost disease. We also find evidence of a third channel related to policy, suggesting that rising inequality has resulted in policies that are less conducive to growth in life expectancy. Length: 23 Creation-Date: 2023-06 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2308.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2308 Classification-JEL: E25, I14, I24 Keywords: Labor share, life expectancy, Baumol's cost disease Handle: RePEc:pke:wpaper:PKWP2308 Template-Type: ReDIF-Paper 1.0 Author-Name: Ryan Woodgate Author-Name-First: Ryan Author-Name-Last: Woodgate Author-Name: Eckhard Hein Author-Name-First: Eckhard Author-Name-Last: Hein Author-Name: Ricardo Summa Author-Name-First: Ricardo Author-Name-Last: Summa Title: Components of autonomous demand growth and financial feedbacks: Implications for growth drivers and growth regime analysis Abstract: Since autonomous demand has to be financed independently of income from current production, this paper starts with the requirement that autonomous demand-led growth models have to include endogenous money and credit, and hence financial dynamics. It then seeks to make two contributions. First, we show that the inclusion of financial stock-flow interactions in a simple closed economy autonomous demand-led growth model provides an endogenous mechanism which, under certain conditions, aligns two autonomous growth rates, as a requirement for long-run equilibrium. Second, using that model, we prove that the relative size of autonomous growth contributions may be misleading as a guide to classify growth regimes if autonomous growth rates are interdependent, both for the steady state growth equilibrium as well as for the traverse towards this equilibrium. Furthermore, we show that the relative growth contributions are economic policy contingent. Therefore, in Sraffian supermultiplier demand-led growth decomposition exercises, interdependencies between autonomous growth components should not be ignored when growth drivers are supposed to be identified, both in medium- to long-run growth regime analysis, as well as in the analysis of autonomous drivers of short-run cycles. Length: 23 Creation-Date: 2023-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2307_zV03und.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2307 Classification-JEL: E11, E12, E20, E62 Keywords: Sraffian supermultiplier and endogenous credit, two autonomous growth drivers, demand-led growth accounting, growth regimes Handle: RePEc:pke:wpaper:PKWP2307 Template-Type: ReDIF-Paper 1.0 Author-Name: Annina Kaltenbrunner Author-Name-First: Annina Author-Name-Last: Kaltenbrunner Author-Name: Elif Karaçimen Author-Name-First: Elif Author-Name-Last: Karaçimen Author-Name: Joel Rabinovich Author-Name-First: Joel Author-Name-Last: Rabinovich Title: The changing financial practises of Brazilian and Turkish firms under financial subordination, a mixed-methods analysis Abstract: This article investigates the changing financial behavior of non-financial corporations (NFCs) in emerging markets (EMs) with a particular focus on Brazil and Turkey. Studies analysing new financial operations of EM NFCs have been cursory and few in number, focusing either on aggregate balance sheet analysis or single case study countries. Additionally, these studies have paid little attention to what underlying motives are and how structural pressures facing the EM NFCs mediate financial behaviours of NFCs. This lacuna is significant as specific manifestations of NFCs changing interaction with financial markets are highly variegated and shaped by the hierarchic world economy. Undertaking a comparative analysis of financial behaviours of NFCs in Brazil and Turkey based on balance sheet analysis and semi structured interviews, this paper shows how EM firms behaviour differs from that of their developed counterpart due their subordinate integration into the world economy. It departs from explanations focusing on carry-trading in order to account for high levels of debt and liquid resources. On the contrary, this article argues that firm financial behaviour in EMs takes a dualistic and heterogenous nature manifested in the type of firm engaged with financial markets and its sectoral belonging. The paper also shows not only the crucial but also the contradictory role state play in mediating the behaviours of EMs firms. Length: 23 Creation-Date: 2023-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2306_VdkwgAy.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2306 Classification-JEL: F36, G30, L20 Keywords: financialization, subordination, firm strategy, market-based finance Handle: RePEc:pke:wpaper:PKWP2306 Template-Type: ReDIF-Paper 1.0 Author-Name: Hiroshi Nishi Author-Name-First: Hiroshi Author-Name-Last: Nishi Author-Name: Kazuhiro Okuma Author-Name-First: Kazuhiro Author-Name-Last: Okuma Title: Social common capital accumulation and fiscal sustainability in a wage-led growth economy Abstract: We build a three-dimensional Kaleckian dynamic model, incorporating government-provided social common capital’s long-run stock effects and subsequent debt accumulation. We investigate how fiscal stance changes and demand and distributional impacts in a wage-led growth regime affect social common capital accumulation, economic growth, and stability. The Keynesian stability and Domar conditions are necessary for a long-run economically meaningful steady state, while a proactive fiscal stance promotes higher economic growth and a more sustainable economy. A higher wage share stabilises the economy by increasing the likelihood of satisfying the Domar condition, realising an equitable workers/capitalists income distribution, and establishing a resilient economy. Length: 26 Creation-Date: 2023-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2305.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2305 Classification-JEL: E11, E12, E25, H54, O40 Keywords: Social common capital, fiscal sustainability, government debt, wage-led growth, Kaleckian model Handle: RePEc:pke:wpaper:PKWP2305 Template-Type: ReDIF-Paper 1.0 Author-Name: Hiroshi Nishi Author-Name-First: Hiroshi Author-Name-Last: Nishi Author-Name: Kazuhiro Okuma Author-Name-First: Kazuhiro Author-Name-Last: Okuma Title: Fiscal policy and social infrastructure provision under alternative growth and distribution regimes Abstract: Recent crises show that the market economy does not function autonomously but needs re-silient social, natural, and institutional foundations. Accordingly, fiscal sustainability cannot be ignored, and the government’s role in fiscal policy and social infrastructure provision is becoming increasingly important. We build a Kaleckian dynamic model that can comprehen-sively analyse the growth, distribution, and employment rate of the government’s social infra-structure and debt accumulation under alternative growth and distribution regimes. The model allows for not only wage-led growth (WLG) and profit-led growth (PLG) regimes but also labour-market-led (LML) and goods-market-led (GML) distribution regimes. Particular attention is paid to the demand effects of fiscal policy and productivity growth effect of social infrastructure investment. Our model derives the following results. A combination of alterna-tive growth and distribution regimes is important for stability. This demonstrates that the cy-clical behaviours of the WLG/GML and PLG/LML regimes are highly contrasting. When gov-ernment debt also changes in the long run, the Domar condition is required for stability. In contrast to the principally Kaleckian nature, the long-run economic growth rate depends not on demand or fiscal parameters but on supply side parameters determining the natural growth rate. Based on these results, we explain that the government can still play an im-portant role in stabilising the economy, improving the quality of social infrastructure, and achieving a resilient economy. Length: 34 Creation-Date: 2023-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2304.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2304 Classification-JEL: E11, E12, E25, H54, O40 Keywords: Fiscal policy, social infrastructure, Kaleckian model, growth regime, distribution regime Handle: RePEc:pke:wpaper:PKWP2304 Template-Type: ReDIF-Paper 1.0 Author-Name: Gabriel Porcile Author-Name-First: Gabriel Author-Name-Last: Porcile Author-Name: Gilberto Tadeu Lima Author-Name-First: Gilberto Tadeu Author-Name-Last: Lima Title: Rentiers, Strategic Public Goods and Financialization in the Periphery Abstract: This paper revisits a traditional theme in the literature on the political economy of development, namely how to redistribute rents from traditional exporters of natural resources towards capitalists in technology-intensive sectors that have a higher potential for innovation and the creation of higher-productivity jobs. We argue that this conflict has been reshaped in the past three decades by two major transformations in the international economy. The first is the acceleration of technical change and the key role governments play in supporting international competitiveness. This role takes the form of the provision of strategic public goods to foster innovation and the diffusion of technology (what Christopher Freeman called “technological infrastructure”). The second is the impact of financial globalization in limiting the ability of governments in the periphery to tax and/or issue debt to finance those public goods. Capital mobility allows exporters of natural resources to send their foreign exchange abroad to arbitrate between domestic and foreign assets, and to avoid taxation. Using a macroeconomic model for a small open economy, we argue that in this more complex international context the external constraint on output growth assumes different forms. We focus on two polar cases: the “pure financialization” case, in which legal and illegal capital flights prevent the government from financing the provision of strategic public goods; and the “trade deficit” case, in which private firms in the more technology-intensive sector cannot import the capital goods they need to expand industrial production. Length: 32 Creation-Date: 2023-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2303.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2303 Classification-JEL: E12, F31, F63, H41, O11 Keywords: Rentiers; public goods; financial globalization; technological infrastructure; center and periphery Handle: RePEc:pke:wpaper:PKWP2303 Template-Type: ReDIF-Paper 1.0 Author-Name: MatÍas Vernengo Author-Name-First: MatÍas Author-Name-Last: Vernengo Author-Name: Esteban Ramon Perez Caldentey Author-Name-First: Esteban Author-Name-Last: Perez Caldentey Title: Price and Prejudice: A Note on the Return of Inflation and Ideology Abstract: The current debate on the causes of inflation is dominated by a particular view of what caused the inflationary acceleration in the 1970s, the so-called Great Inflation. In this view inflation is always and everywhere a demand phenomenon and requires contractionary monetary policy to be kept under control. The alternative view put forward by many heterodox authors emphasize what might be termed the oligopolistic view of inflation. In this paper we trace the limitations of both views for the center and the periphery. Length: 21 Creation-Date: 2023-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2302.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2302 Classification-JEL: E12, E31, E52, O11 Keywords: Center-periphery, conflict inflation, corporate power, excess demand, supply-side shocks Handle: RePEc:pke:wpaper:PKWP2302 Template-Type: ReDIF-Paper 1.0 Author-Name: Hamid Raza Author-Name-First: Hamid Author-Name-Last: Raza Author-Name: Thibault Laurentjoye Author-Name-First: Thibault Author-Name-Last: Laurentjoye Author-Name: Mikael Randrup Byrialsen Author-Name-First: Mikael Author-Name-Last: Randrup Byrialsen Author-Name: Sebastian Valdecantos Author-Name-First: Sebastian Author-Name-Last: Valdecantos Title: Resurgence of inflation: Assessing the role of Macroeconomic Policies Abstract: After decades of relative consumer price stability, inflation is now making a come-back as a central topic in economic and political discussions, against a backdrop of various policy challenges. The aim of this paper is to provide a nuanced assessment of the different channels through which monetary, fiscal and income policies can affect prices and output in a small open economy, as well as discuss which policy measures are desirable and practically feasible when such an economy experiences inflationary shocks. To do so, we adopt a comprehensive modelling approach and build an empirical stock-flow-consistent model using sectoral national account data for Denmark over the period 2005Q1-2020Q1. We then replicate the inflationary environment in which Denmark and several other countries are currently operating and introduce a monetary policy reaction which leads to a modest reduction in inflation at the cost of further contracting the economy. Taking monetary tightening as a forced policy response in the case of a small open economy with fixed exchange rate, we explore a number of policies that, within the current institutional and legal framework, can potentially mitigate the adverse effects of inflation. Specifically, we introduce fiscal interventions - in the form of tax cuts on income and production - along with wage- and price-based income policies. Our main conclusion is that a close coordination of fiscal and income policies can help reduce the effects of adverse shocks to income without increasing inflation. Finally, we address a question of political relevance by exploring the effects of different policies on public budget and debt. Overall, we find that of all the policies implemented, monetary policy has the most dramatic effects on public debt sustainability. Length: 20 Creation-Date: 2023-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2301.pdf File-Format: Application/pdf File-Function: First version, 2023 Number: PKWP2301 Classification-JEL: E12, E52, E61, E64 Keywords: Inflation, Fiscal policy, Monetary policy, Income policy, Stock-flow consistent model Handle: RePEc:pke:wpaper:PKWP2301 Template-Type: ReDIF-Paper 1.0 Author-Name: Manuel David Cruz Author-Name-First: Manuel Author-Name-Last: Cruz Author-Name: Daniele Tavani Author-Name-First: Daniele Author-Name-Last: Tavani Title: Secular Stagnation: A Classical-Marxian View Abstract: We study a model of secular stagnation, income and wealth distribution, and employment in the classical-Marxian (CM) tradition, with the purpose of drawing a contrast with established neoclassical accounts of the topic (Piketty, 2014; Gordon, 2015). In these explanations, which assume full employment of labor at all times, an exogenous reduction in the growth rate g increases the difference with the endogenous rate of return to capital r. The capital-income ratio rises and, if the elasticity of substitution is above one, the wage share falls. Our explanation does not presuppose full employment, and features a crucial tension between profit-driven capital accumulation and wage-driven labor-augmenting technical change: both these features are defining for CM economics and have been emphasized in recent heterodox macro literature. Institutional or technological shocks that lower the wage share initially foster capital accumulation —which is profit-driven— and increase wealth inequality. However, the effect on long-run growth is negative, because a reduction in the wage share lessens the incentives by firms to introduce labor-saving innovation, which is wage-driven. The capital-income ratio must rise in order to restore balanced growth and stabilize employment in the long run; and the increase in wealth inequality is permanent. The ultimate effect on long-run employment depends on the relative strength of the response of technical change vs. real wage growth to labor market institutions: we identify a simple condition that delivers either a wage-led or a profitled long-run employment regime. We then test the model using time-series data for the US (1960-2019): impulse responses from VECM estimators lend support to the main predictions of our model, and point to the employment-population ratio being wage-led. Length: 32 Creation-Date: 2022-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/SSCMV_merged.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2229 Classification-JEL: D31, D33, E11, E24, E25 Keywords: Secular Stagnation, Factor Shares, Wealth Inequality, Employment Handle: RePEc:pke:wpaper:PKWP2229 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Author-Name: Gabriel Porcile Author-Name-First: Gabriel Author-Name-Last: Porcile Author-Name: Danilo Spinola Author-Name-First: Danilo Author-Name-Last: Spinola Author-Name: Giuliano Toshiro Yajima Author-Name-First: Giuliano Toshiro Author-Name-Last: Yajima Title: Financial integration, productive development and fiscal policy space in developing countries Abstract: This paper offers a simple, tractable post-Keynesian model, which highlights the importance of structural change and productive development in defining the dynamics of the Real Exchange Rate (RER) and foreign debt in a small open developing economy. The argument is that in countries that keep the capital account open and rely on austerity policies to induce a notional surplus in the Balance of Payment, the RER can hardly be used as a tool aimed at smoothing the impacts of changes in international financial markets (as argued in the classical macroeconomic trilemma). In our model, capital flows and fluctuations in the RER endogenously feed back into each other and give rise to cyclical macroeconomic volatility. Fiscal austerity supposedly taming external imbalances exacerbates such instability. More diversified productive structures and stronger non-price competitiveness open more space for expansionary fiscal policies, make the economy more resilient to finance-led macroeconomic cycles, and make external debt more sustainable. Capital controls together with stronger price sensitivity of net exports can further stabilize the economy. The paper carries important policy implications, in particular for the combination of industrial and macroprudential policies in peripheral economies, whose pattern of specialization is highly dependent on a few, low-tech commodities. The adoption of industrial policies to foster non-price competitiveness and diversification is critical to sustain macroeconomic stability, both in the short and the long run. Length: 27 Creation-Date: 2022-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2228.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2228 Classification-JEL: F32, F38, O30 Keywords: Structural Change; Capital Inflows; Macroprudential Policies Handle: RePEc:pke:wpaper:PKWP2228 Template-Type: ReDIF-Paper 1.0 Author-Name: Niall Reddy Author-Name-First: Niall Author-Name-Last: Reddy Author-Name: Joel Rabinovich Author-Name-First: Joel Author-Name-Last: Rabinovich Title: Debunking the short-termist thesis in financialization studies: Evidence from US non-financial corporations 1998 – 2018 Abstract: It’s widely argued that shareholder value orientation (SVO) causes firms to adopt a financialized business model, in which short-run share prices are prioritized over the firm’s long-run growth. Financialized business models entail a “downsizing and distributing” allocation regime – the channeling of resources to shareholder payouts over reinvestment – and other changes that undermine firm’s ability to innovate, reduce costs and retain market share, harming its competitiveness. We test this theory by examining how increased shareholder power and realigned managerial preferences – two underlying ‘mechanisms’ of SVO – affect two sets of outcomes: allocation regime (fixed investment, R&D expenditure and payouts) and real performance (productivity, market share and profitability). We allow for the fact that institutional shareholders likely vary in their preferences for governance, meaning that broad objective of maximizing shareholder profit may conduce highly varying business strategies. Our findings suggest that short-termism is not an outcome common to shareholder primacy in general, but rather governance directed to certain kinds of shareholders – in particular low-turnover, non-passive institutional investors. Moreover it is much more likely to occur when those investors are empowered within the firm rather than reliant solely on managerial reincentivization. This suggests short-termism is a more contingent feature of NFC financialization than commonly supposed. Length: 24 Creation-Date: 2022-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2227.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2227 Classification-JEL: G30, L20 Keywords: financialization, corporate governance, firm strategy, short-termism Handle: RePEc:pke:wpaper:PKWP2227 Template-Type: ReDIF-Paper 1.0 Author-Name: Codrina Rada Author-Name-First: Codrina Author-Name-Last: Rada Author-Name: Daniele Tavani Author-Name-First: Daniele Author-Name-Last: Tavani Author-Name: Rudiger von Arnim Author-Name-First: Rudiger Author-Name-Last: von Arnim Author-Name: Luca Zamparelli Author-Name-First: Luca Author-Name-Last: Zamparelli Title: Classical and Keynesian Models of Inequality and Stagnation Abstract: This paper studies two formal models of long run growth with a medium-run distributive cycle, both of which feature causal links from the rise in inequality to a deterioration of long run macroeconomic performance. Both versions feature an endogenous income-capital ratio: one through the Keynesian notion of effective demand, the other building on induced bias in technical change. A key focus of the analysis is on the assumptions necessary in both frameworks to generate policy implications consistent with the observed decline of the labor share, the income-capital ratio, and labor productivity growth during the neoliberal era. Importantly, both theories: (a) provide space for mutually reinforcing pro-labor and pro-growth policies in the long run, although they differ in the mechanisms at play in these processes; (b) imply a potential tradeoff between pro-labor policies and growth on one hand, and long-run employment on the other; (c) are consistent with the evidence on the distributive cycle at business cycle frequency. Length: 34 Creation-Date: 2022-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2225.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2225 Classification-JEL: E11, E12, E25, E32, O33, O41 Keywords: Distributive cycle, induced technical change, labor share, stagnation Handle: RePEc:pke:wpaper:PKWP2225 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Macroeconomic ingredients for a growth model analysis for peripheral economies. A post-Keynesian-structuralist approach Abstract: The growth models approach (GMA) has become increasingly prominent in Comparative Political Economy over the last years. While it has originally been developed for advanced economies, there is a growing number of applications to developing countries. This raises the question how readily transferable the GMA concepts are to the peripheral capitalist experience. This paper explores the analytical building blocks for an extension of the growth models approach to developing economies from post-Keynesian-structuralist perspective. It argues, that in a developing country context supply-side considerations will be more important and builds on structuralist theory to understand the ‘real’ constraints in the developing countries growth process. It uses Minskyan theory to understand how currency hierarchy creates financial causes for international economic stratification. As a consequence the role of the state is more crucial than in advanced economies, but at the same time states are more vulnerable. The paper concludes by reflecting on the key concepts of GMA, finance-led, export-led and state-led growth in the light of developing economies and identifying neoliberal as well developmentalist versions of these. Length: 24 Creation-Date: 2022-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2226.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2226 Classification-JEL: E60, F00, F30, O11, P10 Keywords: Comparative Political Economy, growth models, structuralism post-Keynesian Economics, developing economies Handle: RePEc:pke:wpaper:PKWP2226 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Andre Novas Otero Author-Name-First: Andre Author-Name-Last: Novas Otero Title: A tale of housing cycles and fiscal policy, not competitiveness. Growth drivers in southern Europe Abstract: Southern European countries are widely considered a distinct type of capitalism, but they have experienced a varied growth performance, both over time and across countries. This paper investigates the growth drivers in southern Europe since the mid-1990s. We consider a broad set of potential growth drivers derived from the literature on Mediterranean capitalism and Comparative Political Economy more broadly. On the demand side these include the role of house prices (as the main financial variable; highlighted in parts of the growth models approach); the ‘financial curse’ hypothesis (which posits that financial inflows caused house price booms and crowded out manufacturing activities); and Keynesian arguments on the impact of fiscal policy. On the supply side, these encompass the cost competitiveness argument (consistent with mainstream economics and the Varieties of Capitalism approach), research-led technological change; and neo-structuralist arguments regarding the productive capacity. We find strong evidence for the growth contributions of house prices and fiscal policy. While these findings are generally supportive of extant analysis of these economies as finance-led rather than export-led, they call for a more serious integration of house prices in growth model analysis and for a more systematic analysis of the growth impact of fiscal policy. Length: 23 Creation-Date: 2022-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2224.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2224 Classification-JEL: B20, B50, E12, O43, P51 Keywords: Comparative Political Economy, growth models, growth drivers, southern Europe, house price cycles, fiscal policy Handle: RePEc:pke:wpaper:PKWP2224 Template-Type: ReDIF-Paper 1.0 Author-Name: Thibault Laurentjoye Author-Name-First: Thibault Author-Name-Last: Laurentjoye Author-Email: thiblaur@business.aau.dk Author-Workplace-Name: EHESS Paris (FR) Title: Foreign exchange reserves, imperfect substitutability of financial assets and the monetary policy quadrilemma Abstract: In this paper, I investigate how the use of foreign exchange reserves can turn the monetary policy trilemma into a quadrilemma. After surveying recent developments in international macroeconomics literature, including the dilemma vs trilemma debate and the dominant currency paradigm, I make a twofold contribution to support the case for the quadrilemma. The first contribution is a logical characterisation of the quadrilemma in the form of a single equation which includes exchange rate variations, interest rate differential, capital controls and the level of reserves. The second contribution consists of a nominal stock-flow consistent model with two countries, characterised by perfect capital mobility and imperfect asset substitutability, to study the pure effect of international investors’ portfolio reallocation following unanticipated changes in the policy rate of the domestic economy. The model is run several times, varying the direction of the monetary policy shock and the relative size of the two countries. Two constraints on reserves are highlighted, one in the short run and one in the long run – albeit less significant – which define the limit between the classical trilemma and the quadrilemma. Length: 32 Creation-Date: 2022-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2222.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2222 Classification-JEL: E43, E58, F31, F32, F36, F41 Keywords: International reserves, foreign exchange intervention, monetary policy trilemma, quadrilemma, stock-flow consistent modelling Handle: RePEc:pke:wpaper:PKWP2222 Template-Type: ReDIF-Paper 1.0 Author-Name: Giulio Guarini Author-Name-First: Giulio Author-Name-Last: Guarini Author-Name: Jose Luis Oreiro Author-Name-First: Jose Author-Name-Last: Oreiro Title: Ecological Transition and Structural Change: A New-Developmentalist Analysis Abstract: The article aims to analyze the ecological transition and the structural change by considering the role of Medium-Income Trap (MIT) with respect to exchange rate overvaluation and (re)industrialization, according to the structuralist-New Developmentalist Approach. The ecological challenges can be faced by an ecological transition based on Ecological Technological Progress and Ecological Structural Change (ESC). The ESC can be represented by the increase of the share of green activities in output for increasing the environmental efficiency of the economy. The theoretical core of the new developmentalism is the tendency of overvaluation of real exchange rate for middle income countries whose sources are the Dutch disease (and the growth with external saving strategy). This fact generates the MIT concerning the negative impact of overvaluation real exchange rate on the industrial development. Thus, we analyze how the ESC interact with the drivers of overvaluation exchange rate by carrying out a post-Keynesian model based the Structuralist-New Developmentalist features. In this perspective, we integrate the issue of the achievement of the environmental targets as indicated by the Climate International Conferences and by the UN initiative of the Sustainable Developments Goals, to the structural change necessary for the economic catching-up of the middle income (and/or developing) countries. Length: 32 Creation-Date: 2022-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2223.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2223 Classification-JEL: O11, O14, Q56, Q57 Keywords: Ecological Transition, Structural Change, Dutch-Disease, New-Developmentalism Handle: RePEc:pke:wpaper:PKWP2223 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Rob Calvert Jump Author-Name-First: Rob Calvert Author-Name-Last: Jump Title: An Estimation of Unemployment Hysteresis Abstract: This paper explores the degree of hysteresis in EU unemployment rates. The hysteresis hypothesis holds that actual (demand-determined) unemployment can turn into structural unemployment. The European Commission estimates and reports NAIRUs as part of the AMECO dataset, which also inform the EU fiscal policy rules. These exclude the possibility of hysteresis by assumption. We present a simple model to estimate hysteresis effects. We demonstrate that there is significant evidence for the existence of unemployment hysteresis in the majority of the EU15 countries. In the EU15 as a whole, we find the average degree of hysteresis to be 80%. Our findings suggest that the European Commission could profitably consider alternative NAIRU estimation strategies that allow for unemployment hysteresis. These results have two important consequences for policy makers. First, they indicate that a lack of government intervention in response to negative shocks has immediate effects in the form of increasing unemployment as well as long-lasting effects on the NAIRU. This is consistent with the OECD Employment Outlook 2017. Second, as the NAIRU estimates enter the calculation of the output gap and the structural deficit, the EU Fiscal Compact should be reconsidered. Length: 32 Creation-Date: 2022-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2221.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2221 Classification-JEL: E24, E60, E61 Keywords: unemployment, unemployment hysteresis, Europe, NAIRU Handle: RePEc:pke:wpaper:PKWP2221 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Palley Author-Name-First: Thomas Author-Name-Last: Palley Title: Theorizing dollar hegemony, Part 1: the political economic foundations of exorbitant privilege Abstract: This paper explores dollar hegemony, emphasizing it is a fundamentally political economic phenomenon. Dollar hegemony rests on the economic, military, and international political power of the US and is manifested through market forces. The paper argues there have been two eras of dollar hegemony which were marked by different models. Dollar hegemony 1.0 corresponded to the Bretton Woods era (1946-1971). Dollar hegemony 2.0 corresponds to the Neoliberal era (1980-Today). The 1970s were an in-between decade of dollar distress during which dollar hegemony was reseeded. The deep foundation of both models is US power, but the two models have completely different economic operating systems. Dollar hegemony 1.0 rested on the trade and manufacturing dominance of the US after World War II. Dollar hegemony 2.0 rests on the Neoliberal reconstruction of the US and global economies which have made the US the center of global capitalism and the most attractive place to hold capital. It is a financial model and intrinsically connected to Neoliberalism. Consideration of dollar hegemony leads to two further questions. One is whether there is a better way of organizing the world monetary order, which is associated with debate about the possibility of a new Bretton Woods. The other is what is the future of dollar hegemony? Length: 64 Creation-Date: 2022-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2220_v2.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2220 Classification-JEL: F00, F02, F30, F33 Keywords: Dollar hegemony, Neoliberalism, power, currency competition, capital mobility, Bretton Woods Handle: RePEc:pke:wpaper:PKWP2220 Template-Type: ReDIF-Paper 1.0 Author-Name: Joana David Avritzer Author-Name-First: Joana Author-Name-Last: David Avritzer Author-Name: Lídia Brochier Author-Name-First: Lídia Author-Name-Last: Brochier Title: Household credit-financed consumption and the debt service ratio: tackling endogenous autonomous demand in the Supermultiplier model Abstract: The paper develops a Supermultiplier model where household debt-financed consumption is the autonomous component of demand driving growth. However, instead of taking autonomous consumption growth as exogenous - as usually done in canonical Supermultiplier models - we assume households’ debt service ratio partially determines it. More precisely, we define a consumption function that captures: (i) the fact that households’ demand for credit may depend on the burden interest payments have on their income (wages) and (ii) that credit conditions may also affect the pace of household expenditures. There are two equilibria in the model: one with a lower debt ratio and higher growth rate; and the other with a higher debt ratio and lower growth rate. Both equilibria are locally stable for the chosen set of parameters, yet the system converges to the steady state with a lower household debt ratio and higher growth rate. Both real and financial variables affect the steady growth path in the model, with the wage share and firms’ propensity to invest having a positive effect on growth while the interest rate has a negative one. Length: 46 Creation-Date: 2022-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2219_revised.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2219 Classification-JEL: B50, C61, E11, G15, O41 Keywords: demand-led growth, Supermultiplier, household debt, consumption, endogenous autonomous demand Handle: RePEc:pke:wpaper:PKWP2219 Template-Type: ReDIF-Paper 1.0 Author-Name: Christina Wolf Author-Name-First: Christina Author-Name-Last: Wolf Title: Demand-growth in support of structural change: evidence from Nigeria’s formal manufacturing sector Abstract: An emerging literature on demand-led structural transformation and structuralist macroeconomics finds that demand-growth can positively complement industrial policy and drive structural transformation but there is no firm consensus which policies can achieve a sustained virtuous circle of demand-, output- and productivity growth. Looking at evidence from manufacturing companies listed on the Nigerian Stock Exchange (NSE), this paper supports the view that demand-growth can be a catalyst of structural transformation but only if demand problems of different nature are addressed simultaneously. Increases in government spending need to be combined with distributional policies favouring the disposable income of workers and subsistence communities and with policies that can address country-specific and historically formed supply-side problems in vertically linked sectors to counteract external demand problems manifesting through the balance of payments. Length: 33 Creation-Date: 2022-06 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2218.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2218 Classification-JEL: L16, O11, O14, O25, O55 Keywords: Demand-led Structural Transformation, Industrial Policy, Nigeria, NSE-listed manufacturing companies Handle: RePEc:pke:wpaper:PKWP2218 Template-Type: ReDIF-Paper 1.0 Author-Name: Esteban Ramon Perez Caldentey Author-Name-First: Esteban Author-Name-Last: Perez Caldentey Author-Name: Lorenzo Nalin Author-Name-First: Lorenzo Author-Name-Last: Nalin Author-Name: Leonardo Rojas Author-Name-First: Leonardo Author-Name-Last: Rojas Title: A baseline stock-flow model for the analysis of macroprudential regulation for Latin America and the Caribbean Abstract: This paper provides a critical view of macroprudential regulation/policies found in mainstream and post-Keynesian economics. The paper provides a macroeconomic framework that can be used as a basis for the analysis of macroprudential guidelines and policies. It is based on on five main principles/guidelines: (i) financial fragility is endogenous and results from the normal functioning of market based economies driven by the profit motive; (ii) financial fragility can originate in the financial and real sectors of an economy; (iii) financial cycles are not necessarily driven by boom and busts and financial fragility need not originate in an economic boom; (iv) macroprudential policies should be viewed from a dynamic perspective, that is they must take into account the changes in the international financial architecture/structure and be region/country specific; and (v) macroprudential regulation/guidelines requires a truly macroeconomic framework. These principles are captured in the specification of a baseline stock-flow model for Latin America and the Caribbean with five sectors (government, central bank, financial sector, private sector, and external sector). The model is a tool that can be used for evaluating other macroprudential policies. Length: 59 Creation-Date: 2022-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2217.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2217 Classification-JEL: B59, E32, E52, F21, F41, G15 Keywords: Debt, external constraint, external financial cycle, financial flows, Latin America and the Caribbean, microprudential and macroprudential regulation, stock-flow Handle: RePEc:pke:wpaper:PKWP2217 Template-Type: ReDIF-Paper 1.0 Author-Name: Zdravka Todorova Author-Name-First: Zdravka Author-Name-Last: Todorova Title: Care, Job Guarantee, and Revisiting “Socialization of Investment”: Insights from Institutional Economics Abstract: The article discusses commitment to full employment in light of institutional theory and offers a renewed examination of Keynes’s "socialization of investment" concept. The discussion builds on Veblen's theory of human development, predation, and capitalism. It highlights contemporary institutional inquiry in a discussion of ongoing issues of care and social disparities. Based on this, the article formulates problems for a broader inquiry about socialization of investment. The article provides insights about Job Guarantee based on original institutional economics concepts. Length: 18 Creation-Date: 2022-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2216.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2216 Classification-JEL: B52, B54, E12, P16, Z18 Keywords: job guarantee, care systems, Feminist Post Keynesian-Institutional economics, social stratification, socialization of investment, Modern Money Theory and institutions Handle: RePEc:pke:wpaper:PKWP2216 Template-Type: ReDIF-Paper 1.0 Author-Name: Jose Luis Oreiro Author-Name-First: Jose Author-Name-Last: Oreiro Author-Name: Julio Fernando Costa Santos Author-Name-First: Julio Fernando Author-Name-Last: Costa Santos Title: The Impossible Quartet in a Demand Led Growth-Supermultiplier Model for a Small Open Economy Abstract: The aim of this paper is to investigate the long run sustainability of a growth path led by multiple non-creating capacity autonomous expenditures in a demand led-supermultiplier model for a small open economy. Using two different models the results show that it is impossible to have in the same model long-term economic growth driven by the non-capacity creating component of domestic demand, exogenous income distribution, long-run balance between productive capacity and aggregate demand and balance of payments equilibrium. Economic viability of the balanced-growth path demands growth to be led by exports, at least for small open economies. Length: 32 Creation-Date: 2022-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2215.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2215 Classification-JEL: E12, E37, P10 Keywords: Post-Keynesian Economics, Growth and Distribution, Srafian Supermutiplier, Simulation Models Handle: RePEc:pke:wpaper:PKWP2215 Template-Type: ReDIF-Paper 1.0 Author-Name: Santiago J. Gahn Author-Name-First: Santiago Author-Name-Last: Gahn Title: Towards an explanation of a declining trend in capacity utilisation in the US economy Abstract: In this paper I analyse a declining trend of effective capacity utilisation in the United States. After identifying determinants of normal capacity utilisation in the literature, I find that this declining trend of the FRB’s capacity utilisation is also present in the output-capital ratio of the NBER-CES sectoral database since 1958. Results suggest that permanent changes on technical change (K/L), distribution (W/Y ) and output have transitory effects on the output-capital ratio, my proxy of effective capacity utilisation. Length: 24 Creation-Date: 2022-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2214.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2214 Classification-JEL: B50, E11, E22, O41, O47 Keywords: capacity utilisation, technical change, income distribution, Panel Structural VAR Handle: RePEc:pke:wpaper:PKWP2214 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Palley Author-Name-First: Thomas Author-Name-Last: Palley Title: More on the limits of New Developmentalism Abstract: Oreiro and de Paula’s (2022) reply to my article (Palley, 2021) further convinces me that New Developmentalism (ND) substantially misconstrues the development challenge and ND’s policy recommendations lean in a Neoliberal direction. The critique of ND is not its emphasis of the importance of manufacturing. It is the regressive inclination, the narrowness of policy recommendations, neglect of the transformation dimension of development, and neglect of the implications of the shift to a post-industrial era. Length: 23 Creation-Date: 2022-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2213.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2213 Classification-JEL: O11, O14, O23 Keywords: New Developmentalism, Classical Developmentalism, economic development, transformation Handle: RePEc:pke:wpaper:PKWP2213 Template-Type: ReDIF-Paper 1.0 Author-Name: Matteo Deleidi Author-Name-First: Matteo Author-Name-Last: Deleidi Author-Name: Claudia Fontanari Author-Name-First: Claudia Author-Name-Last: Fontanari Author-Name: Santiago J. Gahn Author-Name-First: Santiago Author-Name-Last: Gahn Title: Autonomous Demand and Technical Change: Exploring the Kaldor-Verdoorn Law on a Global Level Abstract: This paper aims to explain labour productivity through the lens of a Kaldorian perspective. To assess the relationship between output, demand, capital accumulation, and labour productivity, we apply Panel Structural Vector Autoregressive (P-SVAR) modelling to a dataset of 52 countries observed over a long-time span as provided by the Penn World Table. Findings validate the Kaldorian perspective and show that demand shocks – measured by government expenditures and exports – produce positive and persistent effects on labour productivity. Findings are confirmed even when the full sample is broken down to consider developed and developing countries separately. Length: 34 Creation-Date: 2022-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2212.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2212 Classification-JEL: C33, E12, E24, O33, O47 Keywords: Labour productivity; Autonomous demand; Panel SVAR; Penn World Table, Kaldor-Verdoorn Handle: RePEc:pke:wpaper:PKWP2212 Template-Type: ReDIF-Paper 1.0 Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Title: Capital Flows and the Eurozone's North-South Divide Abstract: The paper offers a monetary perspective on the role of capital flows in the Eurozone's north-south divide. It argues that finance-centric narratives in Comparative Political Economy rightly emphasise financial instability in the periphery, but that the role of capital flows therein requires clarification. The paper draws on post-Keynesian monetary theory, coherent accounting, and balance-of-payments data to make three main points. First, the focus on the financial account as a driver of current accounts should be abandoned in favour of an analysis of gross capital flows. Gross flows need not stem from excess savings in core countries and can be independent from trade flows. Second, speculative portfolio flows into bond markets and foreign direct investment into real estate are causally more important than interbank flows in driving financial instability. Third, rising spreads in the periphery during the Eurozone crisis and the outbreak of the pandemic were not triggered by balance-of-payments problems but by a reversal of speculative flows in government bond markets. The argument suggests that Comparative Political Economy should dedicate more attention to institutions that render peripheral countries particularly susceptible to speculative capital flows into asset markets. Length: 29 Creation-Date: 2022-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2211_InGVzKd.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2211 Classification-JEL: E12, F32, F36, F41, O57 Keywords: Gross capital flows, balance-of-payments, current account imbalances, Eurozone crisis, sudden stop, comparative political economy, post-Keynesian macroeconomics Handle: RePEc:pke:wpaper:PKWP2211 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Title: Learning from distant cousins? Post-Keynesian Economics, Comparative Political Economy and the growth models approach Abstract: Since the Global Financial Crisis there has been growing interest in post-Keynesian macroeconomic theory by political economists. In particular the recent growth models approach in Comparative Political Economy (CPE) draws heavily on Kaleckian macroeconomics of demand regimes. This paper, firstly, traces the disintegration of 19th century political economy and highlights that many streams within heterodox economics are a continuation of the political economy project, as are the subfields of CPE and International Political Economy in the social sciences. Secondly, the paper gives an overview of the growth models approach and its relation to post-Keynesian economics (PKE). It clarifies different strategies of identifying growth models empirically, namely GDP growth decomposition versus analysing growth drivers, and it highlights changes in growth models since the Global Financial Crisis. Finally it identifies opportunities and challenges that emerge from a continued engagement of PKE with political economy and with CPE in particular. Length: 22 Creation-Date: 2022-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2210.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2210 Classification-JEL: B20, B50, E12, O43, P51 Keywords: Post-Keynesian Economics, Comparative Political Economy, growth models, varieties of capitalism Handle: RePEc:pke:wpaper:PKWP2210 Template-Type: ReDIF-Paper 1.0 Author-Name: Marco Veronese Passarella Author-Name-First: Marco Author-Name-Last: Passarella Author-Email: m.passarella@leeds.ac.uk Author-Workplace-Name: University of Leeds Title: It is not la vie en rose. New insights from Graziani’s theory of monetary circuit Abstract: The aim of this paper is twofold. First, it shows how a standard stock-flow consistent model (SFCM) can be modified to embed some fundamental insights from Graziani’s theory of monetary circuit (TMC). Second, it aims at addressing some common mis- conceptions about the TMC. More precisely, it is argued that: a) a market-clearing price mechanism does not necessarily imply a neoclassical-like closure of the model; b) the ways in which SFCMs and the TMC define bank loans are mutually consistent, although they are based on different accounting periods; c) consumer credit is final finance, not initial finance; d) the paradox of profit is not a logical conundrum, but an abstract counterfactual that allows shedding light on a neglected role of government spending; e) overall, the TMC can be regarded as a “Marxian” rendition of Keynes’s method of aggregates. Length: 23 Creation-Date: 2022-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2209.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2209 Classification-JEL: E11, E12, E16, E17 Keywords: Theory of Monetary Circuit, Stock-Flow Consistent Models, Macroeconomics, Monetary Economics Handle: RePEc:pke:wpaper:PKWP2209 Template-Type: ReDIF-Paper 1.0 Author-Name: Mark Setterfield Author-Name-First: Mark Author-Name-Last: Setterfield Author-Name: Robert A Blecker Author-Name-First: Robert Author-Name-Last: Blecker Title: Structural change in the US Phillips curve, 1948-2021: the role of power and institutions Abstract: This paper provides an institutional-analytical account of changes in the structure of the US Phillips curve (PC) during the post-war period. It does so by restoring conflict and power to the forefront of macro theory and, in particular, the wage- and price-setting behaviour of workers and firms. The resulting account is consistent with the main stylized facts that characterize the evolution of the US PC since 1948: the disappearance and subsequent reappearance of a ‘standard’ PC (relating the level of the inflation rate, not the change in this rate, to the rate of unemployment); and the flattening of the PC since the 1990s. Length: 28 Creation-Date: 2022-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2208_corrected.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2208 Classification-JEL: E12, E24, E25, E31, N12 Keywords: Phillips Curve, inflation, unemployment, natural rate hypothesis, bargaining power, institutions Handle: RePEc:pke:wpaper:PKWP2208 Template-Type: ReDIF-Paper 1.0 Author-Name: Arpan Ganguly Author-Name-First: Arpan Author-Name-Last: Ganguly Author-Name: Danilo Spinola Author-Name-First: Danilo Author-Name-Last: Spinola Title: Growth and Distribution regimes under Global Value Chains: Diversification, Integration and Uneven Development Abstract: This article aims to theoretically and empirically study the macroeconomic interactions between productive structure and income distribution in the context of the Global Value Chains (GVC). Firstly, we develop a theoretical framework, inspired by the Structuralist macroeconomic literature, establishing distinct regimes in the scenario of globalized production chains. The regimes are defined in terms of (1) a structure/diversification regime, (2) an integration/GVC regime, both drawn from the Balance of Payments Constrained Model (BPCM) literature, and (3) a functional income distribution regime. The theoretical framework guides the selection of proxies used to characterize each regime, measured using Principal Component Analysis (PCA) scores. That allows us to identify country patterns in a structured typology. Finally, we focus on growth trajectories, estimating the causal relationship between each of the beforementioned regimes and per-capita growth, using IV estimations. The dataset consists of 37 countries, with sources from the World Development Indicators (WDI), World Input-Output Database (WIOD), Trade in Value Added (TiVA), and the Penn World Tables (PWT). On one hand, this article contributes to structuralist growth models that typically estimate demand and distribution regimes independently, thereby offering a unified narrative on regimes of economic growth in the context of GVCs. On the other hand, our typology depicts how growth dynamics vary distinctly by geographical regions and how globalization has retained and accelerated processes of uneven development globally. The results show that (1) developed countries are more inclusive in terms of distribution under GVCs, (2) structural change has been exclusive, and growth patterns have been following a specialized pattern, and (3) the growth pattern has been associated with higher integration, but less diversification. Length: 36 Creation-Date: 2022-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2207.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2207 Classification-JEL: E12, F15, F43, O47 Keywords: Global Value Chains, Uneven Development, Income Distribution Handle: RePEc:pke:wpaper:PKWP2207 Template-Type: ReDIF-Paper 1.0 Author-Name: Giancarlo Bertocco Author-Name-First: Giancarlo Author-Name-Last: Bertocco Author-Name: Andrea Kalajzić Author-Name-First: Andrea Author-Name-Last: Kalajzić Title: On the monetary nature of savings: a critical analysis of the Loanable Funds Theory Abstract: To hypothesize the existence of a relationship between money and savings means questioning a fundamental pillar of the mainstream economic theory: the concept of neutrality of money. According to the traditional theory economic phenomena such as savings can be defined independently from money. The objective of this work is to show that savings cannot be defined independently from money and that savings must be considered as a monetary phenomenon. The paper consists of two parts. Starting from Adam Smith’s analysis and continuing up to the approaches developed by contemporary economists, in the first part we summarize the most significant aspects and the limitations of the mainstream theory. In the second part we specify the reasons of the non-neutrality of money and of the monetary nature of savings. Length: 38 Creation-Date: 2022-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2206.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2206 Classification-JEL: B12, B13, B52, E12, E44 Keywords: Savings, money, development, Keynes, Schumpeter Handle: RePEc:pke:wpaper:PKWP2206 Template-Type: ReDIF-Paper 1.0 Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Flexible exchange rates in emerging markets: shock absorbers or drivers of endogenous cycles? Abstract: While flexible exchange rates are commonly regarded as shock absorbers, heterodox views suggest that they can play a pro-cyclical role in emerging markets. This article provides theoretical and empirical support for this view. Drawing on post-Keynesian and structuralist theory, we propose a simple model in which flexible exchange rates in conjunction with external shocks become endogenous drivers of boom-bust cycles, once financial effects from foreign-currency debt are accounted for. We present empirical evidence for regular cycles in nominal US-dollar exchange rates in several emerging markets that are closely aligned with cycles in economic activity. An econometric analysis suggests the presence of a cyclical interaction mechanism between exchange rates and output, in line with the theoretical model, in Chile, South Africa, and partly the Philippines. Further evidence indicates that such exchange rate cycles cannot exclusively be attributed to external factors, such as commodity prices, US monetary policy or the global financial cycle. We therefore argue that exchange rate cycles in emerging markets are driven by the interplay of external shocks and endogenous cycle mechanisms. Our argument implies that exchange rate management may be beneficial for macroeconomic stability. Length: 54 Creation-Date: 2022-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2205.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2205 Classification-JEL: C32, E12, E32, F31 Keywords: Exchange rates, emerging markets, boom-bust cycles, structuralism, global financial cycle, commodity prices Handle: RePEc:pke:wpaper:PKWP2205 Template-Type: ReDIF-Paper 1.0 Author-Name: Jose Luis Oreiro Author-Name-First: Jose Author-Name-Last: Oreiro Author-Name: Kalinka Martins da Silva Author-Name-First: Kalinka Martins Author-Name-Last: da Silva Title: Structuralist Development Macroeconomics and New Developmentalism: Theoretical Foundations and Recent Developments Abstract: The Brazilian New Developmentalist School, also known as "consensus of São Paulo", can be understood as an approach to the deep determinants of economic development in which macroeconomic policy regime has a key role in explaining the long-term growth differentials among countries, notably middle-income countries. The school was originated from the seminal works of Bresser-Pereira (2006, 2007 and 2009) who defined new developmentalism as a set of proposals for institutional reforms and economic policies, whereby the middle-income countries seek to achieve the per-capita income level of developed countries. The first aim of this article is to present the theoretical foundations and the recent developments of the New Developmentalism School. Regarding the theoretical foundations, New Developmentalism is based on the so-called Structuralist Development Macroeconomics, which can be understood as a synthesis between Classical Development Theory, Latin American Structuralism and Post-Keynesian demand-led growth models. One of the most known and controversial features of new developmentalism is the key role of the manufacturing industry and real exchange rate in the process of economic development. The present article presents the state-of-the art reasoning of the New-Developmentalist school about why and how real exchange rate and manufacturing industry matters for long-run growth. Finally, the article discusses the convergences and divergences between New-Developmentalism and Balance of Payments Constrained Growth models, which are up today the major heterodox explanation for uneven development. Length: 27 Creation-Date: 2022-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2204.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2204 Classification-JEL: O11, O14, O40 Keywords: New-Developmentalism, Structuralist Development Macroeconomics, Real Exchange Rate Handle: RePEc:pke:wpaper:PKWP2204 Template-Type: ReDIF-Paper 1.0 Author-Name: Manuel David Cruz Author-Name-First: Manuel Author-Name-Last: Cruz Title: Labor productivity, real wages, and employment: evidence from a panel of OECD economies over 1960-2019 Abstract: This study empirically investigates the relationship between labor productivity (LP), average real wage (RW), and employment (EMP). The paper's main goal is to provide a test of competing theories of growth and income distribution. Standard theory predicts that real wages should increase following increases in labor productivity. Alternative theories and efficiency wage theories suggest that it is the distribution that causes changes in labor productivity. Theory delivers ambiguous predictions regarding the ultimate effects on employment, which can be either negative if factor substitution prevails or positive if higher wages and higher output per worker generate additional aggregate demand and, therefore, employment. I study a panel of 25 OECD economies over 1960-2019, using several approaches: 1) ECM, DOLS, FMOLS, and ARDL regressions with exogenous and endogenous variables, and 2) a VECM exercise as a robustness check. First, there is a long-run relationship between these variables when LP and RW are considered dependent variables. Second, EMP cannot be explained statistically by LP and RW in the long run: it is weakly exogenous, implying that OECD economies as a group have been, on average labor-constrained in the last six decades. Third, I find a positive two-way causality between LP and RW in both the long and short run, supporting the induced technical change, efficiency wages, and bargaining theories over the neoclassical theory. Fourth, concerning the LP-EMP nexus, in the long run, the results show a negative association, statistically significant for the single-equation estimates from EMP to LP in most specifications. Fifth, there is a positive effect running from EMP to RW in most specifications, statistically significant only in the single-equation. Sixth, both LP positively affects EMP, and RW negatively impacts EMP in the short run. Length: 46 Creation-Date: 2022-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2203_rEVvDLK.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2203 Classification-JEL: E12, E24, O47, O50 Keywords: Labor productivity, real wages, employment, OECD Handle: RePEc:pke:wpaper:PKWP2203 Template-Type: ReDIF-Paper 1.0 Author-Name: Biagio Bossone Author-Name-First: Biagio Author-Name-Last: Bossone Title: A Modigliani-Miller Theorem for the Public Finances of Globalized Economies: Theory, Policy Implications, and Keynesian Reflections Abstract: This article is about the economics of the power of global finance to enforce its own interests over national economies. In line with the capital structure irrelevance principle of Modigliani and Miller (1958) as applied to corporate finance, the article shows that the value of the public sector claims (money and debt) of a financially globalized economy is independent of the capital structure of the government’s finances. In particular, the article transposes the Modigliani-Miller approach (enhanced as needed) to public finances and proves a new "neutrality theorem" (and two important related corollaries) whereby, in an economy that is internationally highly financially integrated, the cost of the capital needed by governments to finance their deficits is independent of whether: i) financing originates from debt or money, ii) debt is denominated in domestic or foreign currency, and iii) money and debt are issued under floating or fixed exchange rates. The two corollaries show that governments seeking to monetize their deficits must remunerate money holdings with a return that vary inversely with credibility is lower and directly with the stock of money (eventually defying the original policy objective). The article discusses the options available for countries to approach financial globalization. Length: 37 Creation-Date: 2022-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2202_AaQNRlX.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2202 Classification-JEL: Keywords: capital structure; credibility; debt, equity, and money; global financial investors; credibility; policy space; public sector claims Handle: RePEc:pke:wpaper:PKWP2202 Template-Type: ReDIF-Paper 1.0 Author-Name: Robert Calvert Jump Author-Name-First: Robert Author-Name-Last: Calvert Jump Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Building blocks of a heterodox business cycle theory Abstract: A key characteristic of heterodox theories of the business cycle is their focus on endogenous business cycle mechanisms. This paper provides an overview and comparison of four models in heterodox business cycle theory: multiplier-accelerator models, Goodwin models, Minskyan debt-cycle models, and momentum trader models. A representative model from each theory is formulated as a two-dimensional predator-prey system in continuous time, which allows us to identify the different stabilising and destabilising mechanisms. We argue that the theories are substantially competing, as they posit different mechanisms that explain cycles, but we also argue that these mechanisms are not mutually exclusive. We suggest that heterodox economists work towards a synthesis. Length: 26 Creation-Date: 2022-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2201.pdf File-Format: Application/pdf File-Function: First version, 2022 Number: PKWP2201 Classification-JEL: B41, B50, E32 Keywords: Business cycles; Endogenous cycles; Crises Handle: RePEc:pke:wpaper:PKWP2201 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Author-Name: Giuliano Toshiro Yajima Author-Name-First: Giuliano Toshiro Author-Name-Last: Yajima Author-Name: Gabriel Porcile Author-Name-First: Gabriel Author-Name-Last: Porcile Title: Structural change, productive development and capital flows: Does financial “bonanza” cause premature de-industrialization? Abstract: The outbreak of Covid-19 brought back to the forefront the crucial importance of structural change and productive development for economic resilience to economic shocks. Several recent contributions have already stressed the perverse relation that may exist between productive backwardness and the intensity of the Covid-19 socio-economic crisis. In this paper, we analyze the factors that may have hindered productive development for over four decades before the pandemic. We investigate the role of (non-FDI) net capital inflows as a potential source of premature de-industrialization. We consider a sample of 36 developed and developing countries from 1980 to 2017, with major emphasis on the case of emerging and developing (EDE) economies in the context of increasing financial integration. We show that periods of abundant capital inflows may have caused the significant contraction of manufacturing share to employment and GDP, as well as the decrease of the economic complexity index. We also show that phenomena of “perverse” structural change are significantly more relevant in EDE countries than advanced ones. Based on such evidence, we conclude with some policy suggestions highlighting capital controls and external macroprudential measures taming international capital mobility as useful policy tools for promoting long-run productive development on top of strengthening (short-term) financial and macroeconomic stability. Length: 34 Creation-Date: 2021-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2122.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2122 Classification-JEL: F32, F38, O14, O30 Keywords: Structural change; premature de-industrialization; capital Inflows; macroprudential policies Handle: RePEc:pke:wpaper:PKWP2122 Template-Type: ReDIF-Paper 1.0 Author-Name: Rafael Wildauer Author-Name-First: Rafael Author-Name-Last: Wildauer Author-Name: Stuart Leitch Author-Name-First: Stuart Author-Name-Last: Leitch Author-Name: Jakob Kapeller Author-Name-First: Jakob Author-Name-Last: Kapeller Title: Is a €10 trillion European climate investment initiative fiscally sustainable? Abstract: This policy study asks to what extent large-scale public investment efforts could be a viable tool to provide the necessary infrastructure to break Europe’s dependency on fossil fuel and carbon emissions more broadly. We estimate semi-structural VAR models for the EU27. These are used to study the impact of permanent as well as 5-year long public investment programmes. Three key findings emerge: First, government investment multipliers for the EU27 are large and range from 5.12 to 5.25. Second, debt-to-GDP ratios are likely to fall in response to the strong economic impulse generated by additional public investment spending. The study therefore classifies additional public investment spending in the EU27 as sustainable fiscal policy. Third, single country investment initiatives will likely lead to smaller economic expansions when compared to coordinated EU-wide investment, due to Europe’s strong intra-member state trade flows. A coordinated approach to fiscal policy is thus substantially more effective not only when it comes to delivering network-dependent infrastructure (rail, grid) but also with respect to the economic stimulus it creates. Length: 32 Creation-Date: 2021-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2121.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2121 Classification-JEL: E62, H63 Keywords: Green fiscal policy, public debt sustainability Handle: RePEc:pke:wpaper:PKWP2121 Template-Type: ReDIF-Paper 1.0 Author-Name: Biagio Bossone Author-Name-First: Biagio Author-Name-Last: Bossone Author-Email: biagio.bossone@gmail.com Author-Workplace-Name: World Bank (US) Title: Exercising Economic Sovereignty in Today's Global Financial World: The Lessons from John Maynard Keynes Abstract: In this article, I argue that current macroeconomic models (both orthodox and heterodox), centered as they are on local agents or agencies, do not recognize the role that "global investors" play in determining the space for effective macroeconomic policies. I therefore argue that these important players must be placed at the center of macroeconomic analysis if we are to understand how macroeconomic policies really work in the global financial environment. The article describes the key characteristics of global investors, analyzes their power to determine the value at which public sector liabilities (money and debt) are traded on international markets and how this power affects policy effectiveness. Consequently, no country is truly sovereign in a globalized world and the government of every country is subject to an intertemporal budget constraint (IBC), although, of course, not all countries are equal and not all IBCs are equally binding: the IBCs are flexible and endogenous to the decisions of global investors but in any case, unavoidable. I conclude the article by arguing that the policy choices of countries in today's globalized financial environment would benefit from revisiting some of John Maynard Keynes's teachings, considering his in-depth knowledge of global financial markets and how they affect economies. of the countries. Length: 22 Creation-Date: 2021-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2120_r5l6QqI.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2120 Classification-JEL: E60, F62, F65, G15 Keywords: economic sovereignty; exchange rates; global financial markets; global investors; macroeconomic policies; money; policy credibility; policy space; public debt Handle: RePEc:pke:wpaper:PKWP2120 Template-Type: ReDIF-Paper 1.0 Author-Name: Jakob Kapeller Author-Name-First: Jakob Author-Name-Last: Kapeller Author-Name: Stuart Leitch Author-Name-First: Stuart Author-Name-Last: Leitch Author-Name: Rafael Wildauer Author-Name-First: Rafael Author-Name-Last: Wildauer Author-Email: r.wildauer@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Title: A European Wealth Tax for a Fair and Green Recovery Abstract: This paper investigates the potential of a European net wealth tax to raise substantial revenues while supporting the economy and the consensus on climate action. To achieve this, household survey data from the European Central Bank (covering 22 EU countries) are analysed. To address the problem of under-reporting of wealth at the top of the distribution in survey data, a Pareto distribution is fitted to the right tail of the data and used to create an amended data set which also represents these missing rich, whose wealth goes unreported. The Pareto-amended data show that household wealth is highly concentrated among the wealthiest households: the richest 1% hold 32% of total net wealth in the EU22 while the poorest half of all households only hold about 4.5% of total net wealth. These data are then used to estimate revenues for four different tax models. The results show that annual revenues between €192 billion (1.6% of GDP) and €1,281 billion (10.8% of GDP) across the EU22 are possible. Length: 32 Creation-Date: 2021-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2119.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2119 Classification-JEL: H20, H30 Keywords: progressive wealth taxation, thick tails, Pareto tails Handle: RePEc:pke:wpaper:PKWP2119 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: King’s College London Title: Hilferding, Woytinsky and the fiscal orthodoxy of interwar social democracy Abstract: In 1931, when the Great Depression hit Germany, German social democrats discussed a proposal for a (proto-Keynesian) public-debt financed employment program, the so-called WTB plan drafted by Vladimir Woytinsky. But under the leadership of Rudolf Hilferding, the SPD’s main economics spokesperson (and a former finance minister), the SPD rejected the proposal. The paper argues, firstly, that Hilferding’s endorsement of the gold standard and fiscal austerity can be traced to his analysis in Das Finanzkapital. It, secondly, rejects purely ideational interpretation of social democracy’s hostility to public employment programs. This becomes apparent when considering the experience of other European countries. In the British case a non-Marxist labour government under Ramsey MacDonald also endorsed the gold standard and fiscal orthodoxy. The WTB plan represents a missed opportunity to develop a socialist Keynesianism that would have complemented the Austro-Marxist strategy of a democratic socialism well. Length: 18 Creation-Date: 2021-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2118.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2118 Classification-JEL: B14, B24, B31, N14 Keywords: Keynesianism, Marxism, social democracy, economic policy, gold standard, Austro-Marxism Handle: RePEc:pke:wpaper:PKWP2118 Template-Type: ReDIF-Paper 1.0 Author-Name: Biagio Bossone Author-Name-First: Biagio Author-Name-Last: Bossone Title: Bank Money Creation and the Payments System Abstract: This article investigates how the role that banks play in the payment system space affects their money creation power and process. In particular, the article analyzes how the payments market share of each bank affects its money creation power and how payment settlement technologies and rules determine the banks’ demand for funding and, hence, their money creation power. Also, as the power to create money enables money creators to extract extra-profits or rents ("seigniorage") from the economy, the article evaluates analytically how banks extract seigniorage through money creation and how bank seigniorage differs from profits from pure financial intermediation. By showing the central role that payment systems play in the context of such an important economics topic as money creation, the article seeks to emphasize the relevance of payment system analysis for macroeconomic theory and practice and points to the need for achieving better integration of the two disciplines. Length: 26 Creation-Date: 2021-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2117.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2117 Classification-JEL: E51, E58, G21 Keywords: Bank; Bank money creation; Central bank policy; Demand deposits; Financial intermediaries; Funding; Lending; Payment and settlement systems Handle: RePEc:pke:wpaper:PKWP2117 Template-Type: ReDIF-Paper 1.0 Author-Name: Lorenzo Di Domenico Author-Name-First: Lorenzo Author-Name-Last: Di Domenico Author-Email: lorenzo.didomenico@uniroma3.it Author-Workplace-Name: University of Warsaw (PL) Title: Multiplicity and not necessarily heterogeneity: implications for the long-run degree of capacity utilization Abstract: The paper discusses the implications of disaggregation within the theoretical debate on the long-run convergence of the degree of capacity utilization towards the normal one. To this end, we develop an Agent Based – Stock Flow Consistent version of a demand-led growth model based on the capacity adjustment principle, fixed normal rate of capacity utilization and non-capacity creating autonomous component of demand. We show that, once the implicit assumption on the centralized control over the aggregate productive capacity characterizing aggregate models is removed, the economy displays emergent properties: the fluctuations of the business cycle endogenously arise, and the long-run aggregate degree of capacity utilization fluctuates around a level lower than the normal one. These proprieties help to explain some empirical evidence about the tendential under-utilization of productive capacity and confute both the traditional wisdom according to which there is only one degree of capacity utilization (the normal one) compatible with a stable accumulation and the neo-Kaleckian “closure”. To this extent, we point out that the long-run growth path determined within a Supermultiplier model can be somehow characterized by neo-Kaleckian features but, differently from the last one, such “undesired equilibrium” does not present Harrodian Instability: in the quasi-steady state firms keep trying to restore the exogenously given normal degree of capacity utilization without succeeding in that. The emerging phenomena derive, precisely, from considering a multiplicity of firms rather than the aggregate macro firm, and not by their heterogeneity. In particular, for any given distribution of demand across firms, the decentralized control over aggregate productive capacity produces over-investment with respect to the normal growth path. Length: 40 Creation-Date: 2021-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2116.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2116 Classification-JEL: C63, E11, E12, O42, P16 Keywords: Post-Keynesian economics; Economic growth; Agent Based – Stock Flow Consistent models Handle: RePEc:pke:wpaper:PKWP2116 Template-Type: ReDIF-Paper 1.0 Author-Name: Jose Luis Oreiro Author-Name-First: Jose Author-Name-Last: Oreiro Author-Name: Vitor Antonio Ferreira Dotta Author-Name-First: Vitor Author-Name-Last: Dotta Author-Name: João Pedro Heringer Machado Author-Name-First: João Pedro Author-Name-Last: Heringer Machado Title: Uneven Development in a Kaldor-Pasinetti-Verspagen Model of Growth and Distribution Abstract: The main objective of this paper is to incorporate the technological asymmetries between countries in the formal structure of the so-called Kaldor-Pasinetti model of growth and distribution. We will name such a model as Kaldor-Pasinetti-Verspagen Growth-Model. Our basic contribution for the literature of post-Keynesian models of growth and distribution is to redefine Kaldor´s technical progress function to incorporate the technological gap in the determination of the natural rate of growth. Such incorporation will make possible for such class of models to generate uneven development between countries, at least for mature economies, that is, economies where all labor force is employed in the modern or capitalist sector. Since in such models, income distribution is the adjusting variable between natural and warranted rate of growth, one important result of our model is that income distribution between wages and profits is a non-linear function of the level of technological gap: below some threshold level of technological gap, profit-share will be reduced with the reduction of technological gap; above such threshold level, hover, the opposite effect occurs. Another important contribution of this article is to make a general formulation of the saving function, incorporating in the same model the contributions of both Kaldor and Pasinetti. From this general formulation, we can make different closures for the general model, which will allow the analysis of the implications of different assumptions about saving behavior over the income and wealth distribution in the balanced-growth path of mature economies that operate with different levels of technological gap. Length: 27 Creation-Date: 2021-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2115_85Q6nJf.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2115 Classification-JEL: E12, O11, O14 Keywords: Uneven Development, Post Keynesian Economics, Technological progress Handle: RePEc:pke:wpaper:PKWP2115 Template-Type: ReDIF-Paper 1.0 Author-Name: Stefano Di Bucchianico Author-Name-First: Stefano Author-Name-Last: Di Bucchianico Author-Name: Federica Cappelli Author-Name-First: Federica Author-Name-Last: Cappelli Title: Exploring the theoretical link between profitability and luxury emissions Abstract: Given that the richest 10% of the world population is responsible for more than half of global greenhouse gas emissions between 1990 and 2015, understanding the sources of excessive consumption of wealthier households and the ways to reduce them becomes especially important. Indeed, subsistence emissions are the emissions generated to satisfy basic needs, while luxury emissions are those generated to satisfy non-basic needs and that can, thus, be avoided or reduced. We make use of the ‘integrated wage-commodity sector’ model to study this issue. By using this model, we are able to connect the double role of luxury goods. On the one hand, they are the main reason why profits exist (together with surplus production of other wage-goods), given that profitability stems from surplus production delivered by workers. On the other hand, they are the major constituent of wasteful luxury consumption and, hence, major drivers of CO2 emissions. Three different scenarios (‘green growth’, ‘reformist’, and ‘just transition’) are depicted and connected to the possible policy actions to be undertaken to address social and environmental predicaments. The just transition scenario seems to be the only viable option to respect both social and environmental boundaries. Length: 26 Creation-Date: 2021-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2114.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2114 Classification-JEL: B24, Q52, Q57 Keywords: rate of profit, luxury goods, GHG emissions, decent living standard, climate change Handle: RePEc:pke:wpaper:PKWP2114 Template-Type: ReDIF-Paper 1.0 Author-Name: Biagio Bossone Author-Name-First: Biagio Author-Name-Last: Bossone Title: Global Capital, the Exchange Rate, and Policy (In)Effectiveness Abstract: In line with JMK’s liquidity preference theory, this article holds that in a world of highly internationally financially integrated economies the exchange rate between any two currencies is determined by the financial market views as to what its value is expected to be in the future. These views are influenced by the policy credibility that markets themselves attribute to the currency-issuing countries. After briefly reviewing the established theories of the exchange rate, the article proposes a very simple, aggregate model of equilibrium exchange rate determination based on market views and discusses its basic features and policy implications. It shows that whereas macro policy shocks in highly credible countries affect mostly real output with only a moderate impact on the exchange rate, the same shocks in poorly credible countries dissipate almost entirely in exchange rate movements. The exchange rate ultimately reflects the space that markets make available to national authorities for effective macro policies. Length: 23 Creation-Date: 2021-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2113_v3.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2113 Classification-JEL: F41, F62, G15 Keywords: Credibility; Exchange rate; Global investors and capital; Inflation; Macroeconomic policy Handle: RePEc:pke:wpaper:PKWP2113 Template-Type: ReDIF-Paper 1.0 Author-Name: Greg Philip Hannsgen Author-Name-First: Greg Author-Name-Last: Hannsgen Author-Name: Tai Young-Taft Author-Name-First: Tai Author-Name-Last: Young-Taft Title: Expectational and Portfolio-Demand Shifts in a Keynesian Model of Monetary Growth Fluctuations Abstract: We develop a pair of models to show how non-ad-hoc shifts to expectational variables can be used to model tendencies toward crisis. In the Shackle model, as developed in the book Keynesian Kaleidics (1974), uncertainty can lead to a collapse in the marginal efficiency of investment and a jump in liquidity preference. In the Minsky version of the model, excessive private debt can lead to a financial collapse–again an endogenous breakdown in forces supporting growth. We extend the models to indicate how the dynamics of inflation and distribution affect the dynamics. Length: 24 Creation-Date: 2021-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2112.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2112 Classification-JEL: E12, E32 Keywords: Post Keynesian macro model, Poisson model of financial fragility, Keynesian dynamics, Hyman Minsky, G.L.S. Shackle, Keynesian Kaleidics, endogenous MEI and liquidity preference, financial fragility hypothesis Handle: RePEc:pke:wpaper:PKWP2112 Template-Type: ReDIF-Paper 1.0 Author-Name: Biagio Bossone Author-Name-First: Biagio Author-Name-Last: Bossone Title: Bank Seigniorage in a Monetary Production Economy Abstract: This article speaks to post-Keynesian economists and their fundamental vision of monetary production economies. It focuses on the role of commercial banks as creators of money in monetary production economies and studies the rent-extraction power of banks in the form of "seigniorage." The article examines how the relative size of banks in the payment system combines with their capacity to determine quantities and prices in the market for demand deposits and gives them the power to extract seigniorage from the economy; it clarifies the distinction between seigniorage originating from commercial bank money creation and profits derived from pure financial intermediation; and analyzes how seigniorage affects the economy’s price level and resource distribution. The article draws political-economy and economic-policy implications. Length: 42 Creation-Date: 2021-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2111.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2111 Classification-JEL: E19, E20, E31, E40, E52, E58, E62, G21 Keywords: Commercial banks; Interest rate; Money creation; Prices; Resource distribution; Seigniorage Handle: RePEc:pke:wpaper:PKWP2111 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Palley Author-Name-First: Thomas Author-Name-Last: Palley Author-Email: mail@thomaspalley.com Author-Workplace-Name: Economics for Democratic and Open Societies (US) Title: Financialization revisited: the economics and political economy of the vampire squid economy Abstract: This paper explores the economics and political economy of financialization using Matt Taibbi’s vampire squid metaphor to characterize it. The paper makes five innovations. First, it focuses on the mechanics of the “vampire squid” process whereby financialization rotates through the economy loading sector balance sheets with debt. Second, it identifies the critical role of government budget deficits for the financialization process. Third, it identifies the critical role of central banks, which are the lynchpin of the system and now serve as de facto guarantors of the value and liquidity of private sector liabilities. Fourth, the paper argues financialization imposes a form of policy lock-in. Fifth, it argues financialization transforms popular attitudes and understandings, thereby generating political support despite poor economic outcomes. In effect, there is a politics of financialization that goes hand-in-hand with the economics. The paper concludes with some observations on why mainstream macroeconomics has no equivalent construct to financialization and discusses the disquieting unexplored terrain that the economy is now in. Length: 53 Creation-Date: 2021-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2110_v2.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2110 Classification-JEL: E10, E44, E58, G18 Keywords: financialization, debt, central banks, lock-in Handle: RePEc:pke:wpaper:PKWP2110 Template-Type: ReDIF-Paper 1.0 Author-Name: Luke Petach Author-Name-First: Luke Author-Name-Last: Petach Author-Name: Daniele Tavani Author-Name-First: Daniele Author-Name-Last: Tavani Author-Email: daniele.tavani@colostate.edu Author-Workplace-Name: Colorado State University (US) Title: Aggregate Demand Externalities, Income Distribution, and Wealth Inequality Abstract: We study a two-class model of growth and the distribution of income and wealth at the intersection of contemporary work in classical political economy and post-Keynesian economics. The key insight is that aggregate demand is an externality for individual firms: this generates a strategic complementarity in production and results in equilibrium underutilization of the economy’s productive capacity, as well as hysteresis in real output. Underutilization also affects the functional distribution of income and the distribution of wealth: both the wage share and the workers’ wealth share would be higher at full capacity. Consequently, fiscal allocation policy that achieves full utilization also attains a higher labor share and a more equitable distribution of wealth; while demand shocks have permanent level effects. Extensions look at hysteresis in the employment rate and growth. These findings are useful as an organizing framework for thinking through the lackluster economic record of the so-called Neoliberal era, the sluggish recovery of most advanced economies following the Great Recession, and the importance of fiscal policy in countering large shocks such as the Covid-19 pandemic. Length: 30 Creation-Date: 2021-06 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2108_rev.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2108 Classification-JEL: D31, D33, D62, E12 Keywords: Externalities, Capacity Utilization, Factor Shares, Wealth Inequality Handle: RePEc:pke:wpaper:PKWP2108 Template-Type: ReDIF-Paper 1.0 Author-Name: Walter Paternesi Meloni Author-Name-First: Walter Author-Name-Last: Paternesi Meloni Title: The price vs. non-price competitiveness conundrum: a post-Keynesian comparative political economy analysis Abstract: Recently, several post-Keynesian scholars have entered the debate on comparative political economy. Within this approach, the research on different demand-led growth strategies converges on the idea that differentiated models of capitalism are finding the engines of growth in debt-financed domestic demand or foreign demand, alternatively. Nonetheless, some layers of disagreement emerge when investigating the reasons for a country’s export success, particularly concerning the European core-periphery dualism. On the one side, some studies emphasise the role of price and cost competitiveness. On the other side, other scholars ascribe the huge performance of export-oriented countries to non-price factors (e.g., product quality and diversification). The purpose of this paper is to deepen this specific debate from a post-Keynesian political economy perspective. Besides overviewing the existing literature, we extend Kohler and Stockhammer’s (2021) work on price and non-price competitiveness as growth drivers to export dynamics. Our evidence indicates that both price and non-price competitiveness differentials had been significant in shaping export flows before the outbreak of the great financial crisis of 2007-08. We also observe that methodological issues and large heterogeneity across countries belonging to different models may alter the overall picture on the relative relevance of price and non-price factors. Therefore, we conclude that country-specific analyses based on the estimation of well-specified export equations, explicitly encompassing non-price competitiveness, are necessary to assess the sensitivity of export to price and cost factors. Length: 14 Creation-Date: 2021-06 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2109.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2109 Classification-JEL: E02, O51, P16, P51 Keywords: post-Keynesian economics; comparative political economy; export; price competitiveness; non-price competitiveness Handle: RePEc:pke:wpaper:PKWP2109 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Palley Author-Name-First: Thomas Author-Name-Last: Palley Author-Email: mail@thomaspalley.com Author-Workplace-Name: Economics for Democratic and Open Societies (US) Title: The Macroeconomics of Government Spending: Distinguishing Between Government Purchases, Government Production, and Job Guarantee Programs Abstract: This paper reconstructs the Keynesian income – expenditure (IE) model to include distinctions between government purchases of private sector output, government production, and government job guarantee program (JGP) employment. Analytically, including those distinctions transforms the model from a single sector model into a multi-sector model. It also surfaces the logic behind the automatic stabilizer property of JGP employment. The model is then extended to include Kaleckian income distribution effects which contribute to explaining why expenditure multipliers vary by type of fiscal expenditure. The Kaleckian version generates a new balanced budget multiplier driven by changed composition of government spending. It also illuminates some macroeconomic implications of privatization of government produced services. Length: 32 Creation-Date: 2021-06 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2107.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2107 Classification-JEL: E10, E12, E62 Keywords: Government spending, government production, balanced budget multiplier, automatic stabilizers, job guarantee program Handle: RePEc:pke:wpaper:PKWP2107 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Palley Author-Name-First: Thomas Author-Name-Last: Palley Author-Email: mail@thomaspalley.com Author-Workplace-Name: Economics for Democratic and Open Societies (US) Title: Life among the Econ: fifty years on Abstract: Almost fifty years ago, the Swedish econographer Axel Leijonhufvud (1973) wrote a seminal study on the Econ tribe titled “Life among the Econ”. This study revisits the Econ and reports on their current state. Life has gotten more complicated since those bygone days. The cult of math modl-ing has spread far and wide, so that even lay Econs practice it. Fifty years ago the Econ used to say “Modl-ing is everything”. Now they say “Modl-ing is the only thing”. The math priesthood has been joined by a priesthood of economagicians. The fundamental social divide between Micro and Macro sub-tribes persists, but it has been diluted by a new doctrine of micro foundations. The Econ remain a fractious and argumentative tribe. Length: 8 Creation-Date: 2021-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2106_tvZ792r.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2106 Classification-JEL: A10, B00, B20, Z00, Z10 Keywords: Micro, macro, economagicians, Keynesians, New Classicals, New Keynesians Handle: RePEc:pke:wpaper:PKWP2106 Template-Type: ReDIF-Paper 1.0 Author-Name: Yannis Dafermos Author-Name-First: Yannis Author-Name-Last: Dafermos Author-Name: Maria Nikolaidi Author-Name-First: Maria Author-Name-Last: Nikolaidi Title: How can green differentiated capital requirements affect climate risks? A dynamic macrofinancial analysis Abstract: Using an ecological macrofinancial model, we explore the potential impact of the ‘green supporting factor’ (GSF) and the ‘dirty penalising factor’ (DPF) on climate-related financial risks. We identify the transmission channels by which these green differentiated capital requirements (GDCRs) can affect credit provision and loan spreads, and we analyse these channels within a dynamic framework in which climate and macrofinancial feedback effects play a key role. Our main findings are as follows. First, GDCRs can reduce the pace of global warming and decrease thereby the physical financial risks. This reduction is quantitatively small, but is enhanced when the GSF and the DPF are implemented simultaneously or in combination with green fiscal policies. Second, the DPF reduces banks' credit provision and leverage, making them less fragile. Third, both the DPF and the GSF generate some transition risks: the GSF increases bank leverage because it boosts green credit and the DPF increases loan defaults since it reduces economic activity. These effects are small in quantitative terms and are attenuated when there is a simultaneous implementation of the DPF and the GSF. Fourth, fiscal policies that boost green investment amplify the transition risks of the GSF and reduce the transition risks of the DPF; the combination of green fiscal policy with the DPF is thereby a potentially effective climate policy mix from a financial stability point of view. Length: 44 Creation-Date: 2021-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2105.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2105 Classification-JEL: E12, E44, G18, Q54 Keywords: : stock-flow consistent modelling, climate change, financial stability, green financial regulation Handle: RePEc:pke:wpaper:PKWP2105 Template-Type: ReDIF-Paper 1.0 Author-Name: Walter Paternesi Meloni Author-Name-First: Walter Author-Name-Last: Paternesi Meloni Author-Name: Antonella Stirati Author-Name-First: Antonella Author-Name-Last: Stirati Title: What has driven the delinking of wages from productivity? A political economy-based investigation for high-income economies Abstract: The drop in the labor share experienced in high-income countries in the last three to four decades testifies to a general divergence in the growth rates of labor productivity and average wages. In this respect, we first quantify the magnitude of this decoupling; second, we inquire into the factors that prevented wage growth from keeping pace with productivity. We endorse a ‘political economy’ approach – a line of inquiry which has been recently fueled and followed by the post-Keynesian literature – focusing on the effects on wage dynamics of some macroeconomic and institutional factors in a panel of 22 OECD economies for the post-1970 period. We find that, on average and over the cycle, only 50% of increased productivity went to workers. Our empirics indicate that labor market slack and the weakening of pro-labor institutions have acted as wage-squeezing factors; a negative effect is also found for globalization, specifically for trade openness and international capital mobility. Other aspects of the process of financialization, such as market capitalization and the dynamics of the real interest rate, seem not to have exerted a substantial impact on real wage growth. Length: 38 Creation-Date: 2021-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2104.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2104 Classification-JEL: E25, J30, P16 Keywords: political economy; income distribution; labor market institutions; labor market slack; globalization; financialization Handle: RePEc:pke:wpaper:PKWP2104 Template-Type: ReDIF-Paper 1.0 Author-Name: José Luis Oreiro Author-Name-First: José Luis Author-Name-Last: Oreiro Author-Email: joreiro@unb.br Author-Workplace-Name: None Author-Name: Carmem Aparecida Feijó Author-Name-First: Carmem Author-Name-Last: Aparecida Feijó Author-Name: Lionelo Franco Punzo Author-Name-First: Lionelo Author-Name-Last: Franco Punzo Author-Name: João Pedro Heringer Machado Author-Name-First: João Pedro Author-Name-Last: Heringer Machado Title: Peripherical Financialization and Premature Deindustrialization: A Theory and the Case of Brazil (2003-2015) Abstract: The main objective of this paper is to discuss the concept of financialization in developing economies, arguing that the broad definition of financialization - understood as a growing role of motivations, markets and financial institutions in the operation of domestic and international economies – does not take into consideration important features of those economies, such as the hierarchy of currencies and the subordination to the principles of the so-called Washington Consensus. The latter imposed the adoption of a foreign savings-driven growth model, which mostly applied to Latin American countries. Hence, the financialization process in LDCs will be denominated peripherical financialization, since it is associated with dependence upon capital inflows from developed countries and with the reduction in the autonomy of their macroeconomic policies, even within flexible exchange rate regimes. Attraction of capital inflows to countries with a subordinate position in international financial markets, requires high interest rate differentials which have as side effect a trend to the overvaluation of real exchange rates. This creates a trap, high interest rates with an associated overvalued exchange rate. This trap reduces policy space, turning procyclical even fiscal policy. Moreover, the overvaluation of real exchange rate reduces price competitiveness of the manufacturing industry, becoming the main drive toward these countries’ premature deindustrialization. It will be shown that the macroeconomic performance of the Brazilian economy in the period 2003-2015 fits almost perfectly this model of peripherical financialization. Length: 25 Creation-Date: 2021-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2103.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2103 Classification-JEL: O11, O14, O16 Keywords: Financialization, Premature Deindustrialization, high interest rate-overvalued exchange rate trap Handle: RePEc:pke:wpaper:PKWP2103 Template-Type: ReDIF-Paper 1.0 Author-Name: Greg Philip Hannsgen Author-Name-First: Greg Author-Name-Last: Hannsgen Author-Email: hannsgen@pobox.com Author-Workplace-Name: Greg Hannsgen's Economics Blog (US) Title: A Minimal Probabilistic Minsky Model: 3D Continuous-Jump Dynamics Abstract: This paper proposes a formalization of Hyman P. Minsky’s theory of financial instability. The model includes private-sector borrowing, capacity utilization, and the stock of private-sector debt. The model is based on self-reinforcing borrowing and output dynamics that repeatedly come to a sudden stop, with discontinuous downward jumps in the three variables. The paper treats as endogenous the instantaneous probability of a jump and the size distribution of jump vectors. Formally, the model comprises three ordinary differential equations and a compound Poisson process, with jumps drawn from a heavy-tailed stable distribution. The paper shows it can be stated in three equations in the jump differentials and the usual differentials. A section sketches a nonlinear mechanism that can bound the system. The paper analyzes the dynamics of a simplified version of the main model and a more-SFC model with feedbacks from debt to borrowing and capacity utilization via debt-service effects. The paper reports (1) eigenvalues for the linear parts of both the simplified analytical model and a numerical example of the more-SFC model, (2) a phase diagram for the analytical model, and, (3) analytical stability conditions for the more-SFC model. The model replicates the upward instability and abrupt crises of Minsky’s theory. Length: 24 Creation-Date: 2021-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2102.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2102 Classification-JEL: Keywords: Minsky model, paradox of debt, Poisson process, financial crisis, dynamical macroeconomic model, Hyman P. Minsky, stable distribution, stock-flow consistency, theory of financial instability, dynamical systems, cádlág process, John Maynard Keynes Handle: RePEc:pke:wpaper:PKWP2102 Template-Type: ReDIF-Paper 1.0 Author-Name: Peter Flaschel Author-Name-First: Peter Author-Name-Last: Flaschel Author-Name: Giorgos Galanis Author-Name-First: Giorgos Author-Name-Last: Galanis Author-Name: Daniele Tavani Author-Name-First: Daniele Author-Name-Last: Tavani Author-Name: Roberto Veneziani Author-Name-First: Roberto Author-Name-Last: Veneziani Title: Pandemics and Aggregate Demand: a Framework for Policy Analysis Abstract: This paper studies the interaction between epidemiological dynamics and the dynamics of economic activity in a demand-driven model in the structuralist/post-Keynesian tradition. On the one hand, rising aggregate demand increases the contact rate and therefore the probability of exposure to a virus. On the other hand, rising infection lowers aggregate demand because of reduced household spending. The resulting framework is well-suited for policy analysis through numerical exercises. We show that, first, laissez-faire gives rise to sharp fluctuations in demand and infections before herd immunity is achieved. Second, absent any restrictions on economic activity, physical distancing measures have rather limited mitigating effects. Third, lockdowns are effective, especially at reducing death rates while buying time before a vaccine is available, at the cost of a slightly more pronounced downturn in economic activity compared with alternative policies. This casts some doubt on the so-called “lives versus livelihood” policy trade-off. However, we also highlight the importance of policies aimed at mitigating the effects of the epidemic on workers’ income. Length: 32 Creation-Date: 2021-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2101.pdf File-Format: Application/pdf File-Function: First version, 2021 Number: PKWP2101 Classification-JEL: E12, E25, E60, H00, I10 Keywords: pandemic, aggregate demand, distribution, public policy Handle: RePEc:pke:wpaper:PKWP2101 Template-Type: ReDIF-Paper 1.0 Author-Name: Florentin Kerschbaumer Author-Name-First: Florentin Author-Name-Last: Kerschbaumer Author-Name: Andreas Maschke Author-Name-First: Andreas Author-Name-Last: Maschke Author-Email: bnamasc@leeds.ac.uk Author-Workplace-Name: University of Leeds Title: European Monetary Union and Inequality: A Synthetic Control Approach Abstract: The promise of greater material prosperity and economic convergence has underpinned the process of European economic integration. Its consequences for income inequalities within countries, however, have so far been little discussed. This paper seeks to contribute to the literature by investigating the effects of European economic integration on intra-country income inequality using the synthetic control method. We find that EMU, out of our sample of eight euro countries, has significant effects on inequality in Germany and Spain. From the several theories outlined in the literature, our results lend most support to the growth regime mechanism. Length: 35 Creation-Date: 2020-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2024.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2024 Classification-JEL: D63, N10, N14, P16 Keywords: Income Inequality, European Monetary Union, Synthetic Control Method Handle: RePEc:pke:wpaper:PKWP2024 Template-Type: ReDIF-Paper 1.0 Author-Name: Eckhard Hein Author-Name-First: Eckhard Author-Name-Last: Hein Author-Email: eckhard.hein@hwr-berlin.de Author-Workplace-Name: Berlin School of Economics and Law (DE) Author-Name: Judith Martschin Author-Name-First: Judith Author-Name-Last: Martschin Title: Demand and growth regimes in finance-dominated capitalism and the role of the macroeconomic policy regime: a post-Keynesian comparative study on France, Germany, Italy and Spain before and after the Great Financial Crisis and the Great Recession Abstract: We contribute to the recent debates on demand and growth regimes in modern finance-dominated capitalism linking them to the post-Keynesian research on macroeconomic policy regimes. We examine the demand and growth regimes, as well as the macroeconomic policy regimes for the big four Eurozone countries, France, Germany, Italy and Spain, for the periods 2001-09 and 2010-19. First, our approach supports the usefulness of the identification of demand and growth regimes according to growth contributions of the main demand components and financial balances of the macroeconomic sectors. This allows for an understanding of the demand sources of growth, or stagnation, if there is a lack of demand, of how these sources are financed and of potential financial instabilities and fragilities. Second, when it comes to the macroeconomic policy drivers of demand and growth regimes, as well as their respective changes, we show that the exclusive focus on fiscal policies, as in the previous literature, is too limited, and that it is the macroeconomic policy regime which matters here, i.e. the combination of monetary, fiscal and wage policies, as well as the open economy conditions. Length: 35 Creation-Date: 2020-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2023.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2023 Classification-JEL: E11, E12, E61, E63, E65, O57 Keywords: Demand and growth regimes, macroeconomic policy regimes, post-Keynesian macroeconomics Handle: RePEc:pke:wpaper:PKWP2023 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: None Title: Post-Keynesian macroeconomic foundations for Comparative Political Economy Abstract: Since the global financial crisis and the ensuing weak growth interest in macroeconomic issues has grown within Comparative Political Economy (CPE). The dominant Varieties of Capitalism approach focuses on how different institutional arrangements contribute to competitiveness and thus has a strong supply-side focus, which is complementary with modern mainstream economics. Baccaro and Pontusson (2016) have suggested basing CPE on post-Keynesian theory of distribution and growth. This paper generalises their point and makes a systematic case for post-Keynesian (PK) foundations for CPE. It highlights the PK theory of money and finance and that PKE analyses inequality as well as financial relations as based on class and power relations. The paper identifies the analysis of financialisation, financial cycles, the understanding of neoliberal growth models and the political economy of central banks as areas where PKE can provide specific insights for CPE. Length: 48 Creation-Date: 2020-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2022.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2022 Classification-JEL: E02, E12, P50 Keywords: post-Keynesian economics, comparative political economy, growth models, financial instability Handle: RePEc:pke:wpaper:PKWP2022 Template-Type: ReDIF-Paper 1.0 Author-Name: Michalis Nikiforos Author-Name-First: Michalis Author-Name-Last: Nikiforos Author-Email: michail.nikiforos@unige.ch Author-Workplace-Name: University of Geneva (CH) Title: Induced shifting involvements and cycles of growth and distribution Abstract: The paper builds on the concept of (shifting) involvements, originally proposed by Albert Hirschman (2002 [1982]). However, unlike Hirschman, the concept is framed in class terms. A model is presented where income distribution is determined by the involvement of the two classes, capitalists and workers. Higher involvement by capitalists and lower involvement by workers tends to increase the profit share and vice versa. In turn, shifts in involvements are induced by the potential effect of a change in distribution on economic activity and past levels of distribution. On the other hand, as the profit share increases, the economy tends to become more wage led. The dynamics of the resulting model are interesting. The more the two classes prioritize the increase of their income share over economic activity, the more possible it is that the economy is unstable. Under the stable configuration, the most likely outcome is Polanyian predator-prey cycles, which can explain some interesting historical episodes during the 20th century. Finally, the paper discusses the possibility of conflict and cooperation within each of the distribution-led regimes. Length: 40 Creation-Date: 2020-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2021.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2021 Classification-JEL: E11, E12, E21, E22, E32 Keywords: distribution; economic growth; institutions; social movements; political economy Handle: RePEc:pke:wpaper:PKWP2021 Template-Type: ReDIF-Paper 1.0 Author-Name: Biagio Bossone Author-Name-First: Biagio Author-Name-Last: Bossone Author-Email: Biagio.Bossone@gmail.com Author-Workplace-Name: World Bank (US) Title: Why MMT can’t work: A Keynesian Perspective 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. Length: 37 Creation-Date: 2020-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2020_updated.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2020 Classification-JEL: E12, E20, E40, E52, E62 Keywords: Aggregate demand and output; Equilibrium prices; Fiscal deficits; Interest rate; Liquidity Preference Theory, Money; Policy credibility; Stocks and flows. Handle: RePEc:pke:wpaper:PKWP2020 Template-Type: ReDIF-Paper 1.0 Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Author-Email: karsten.kohler@kcl.ac.uk Author-Workplace-Name: University of Leeds Title: Gross capital flows and the balance-of-payments: a balance sheet perspective Abstract: Gross capital flows have gained increasing attention in empirical research over the last decade. Due to their effects on current accounts and financial stability, gross flows are highly relevant for key issues in macroeconomics, political economy, and public policy. However, the exact relationship between gross flows, net flows and current accounts is often poorly understood. These notes aim to clarify some basic features and implications of gross capital flows. Balance-of-payments and balance-sheet accounting is utilised to illustrate how different kinds of gross flows play out on domestic balance sheets and in the balance-of-payments. Organised around nine propositions, the notes clarify the relationship between gross flows, net flows, and trade flows; explain some interesting properties of pure financial flows; discuss issues related to exchange rates and currency unions; and clarify the nature of sudden stop crises. Length: 28 Creation-Date: 2020-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2019_QQtbngA.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2019 Classification-JEL: F31, F32, F36, F41 Keywords: Gross capital flows, balance-of-payments, current account, imbalances, trilemma, TARGET2, sudden stop Handle: RePEc:pke:wpaper:PKWP2019 Template-Type: ReDIF-Paper 1.0 Author-Name: Konstantinos Loizos Author-Name-First: Konstantinos Author-Name-Last: Loizos Author-Email: kloizos@kepe.gr Author-Workplace-Name: University of Athens (GR) Title: The interbank market, Keynes’s degree of confidence and the link between banks’ liquidity and solvency Abstract: The link between banks’ liquidity and solvency is not adequately addressed in the literature, despite the central role of the interbank market in the spread of the recent crisis. This paper proposes a possible way by which the interbank rate and the required return on equity capital are determined, and are related to each other. Thereby, a link between liquidity and insolvency risk is derived on the grounds of Keynes's concept of ‘degree of confidence’ on held expectations about economic prospects. High degree of confidence and trust prevailing in the interbank market makes risk sharing possible at prices which render bank capital regulation ineffective in the rising phase of the cycle, and overly restricted in the downswing. Basel’s III higher capital, liquidity and leverage ratios might not be enough if measures, in the sense of Minsky’s Big Government-Big Bank, targeting overconfidence in booms and redressing the lack of confidence in the downturns are not taken into account. Length: 20 Creation-Date: 2020-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2017.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2017 Classification-JEL: E12, E32, G21 Keywords: Degree of confidence, Interbank market, Liquidity preference, Insolvency risk, Financial cycles Handle: RePEc:pke:wpaper:PKWP2017 Template-Type: ReDIF-Paper 1.0 Author-Name: Marco Missaglia Author-Name-First: Marco Author-Name-Last: Missaglia Author-Email: marco.missaglia@unipv.it Author-Workplace-Name: University of Pavia (IT) Title: Understanding Dollarization: a Keynesian/Kaleckian Perspective Abstract: What does “dollarization” mean in a world of endogenous money, i.e. a world where money is not (only) created by printing pieces of paper, but (mainly) by making loans? Is it true that dollarization only constitutes a limitation of sovereignty in the short run (making it harder to run standard stabilization macro policies) or can it slow the growth process of a country? The paper builds a theoretical, Keynesian-Kaleckian growth model for a dollarized economy in a framework of endogenous money to answer these questions. We will show that, ceteris paribus, the steady-state medium-term growth rate of a dollarized economy is lower than that of a country with its own currency. We will also show that a dollarized economy is more likely to be unstable than an economy with its own currency, in the specific sense that, everything else being equal, it is more likely for a dollarized economy to fall into a debt trap. Length: 48 Creation-Date: 2020-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2016_cover-merged.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2016 Classification-JEL: E12, F41 Keywords: Dollarization, Keynesian Macro Models Handle: RePEc:pke:wpaper:PKWP2016 Template-Type: ReDIF-Paper 1.0 Author-Name: Marco Missaglia Author-Name-First: Marco Author-Name-Last: Missaglia Author-Email: marco.missaglia@unipv.it Author-Workplace-Name: University of Pavia (IT) Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Title: The role of liquidity preference in a framework of endogenous money Abstract: In this paper we build a simple, almost pedagogical, Keynesian model about the role of liquidity preference in the determination of economic performance. We assume a world of endogenous money, where the banking system is able to fix the interest rate at a level of its own willing. Even in this framework, we show that the Keynesian theory of liquidity preference, while obviously not constituting anymore a theory for the determination of the interest rate, continues to be a fundamental piece of theory for the determination of the level and evolution of aggregate income over time, both in the short and in the medium run. However powerful, the banking system and monetary authorities are not the deus ex-machina of our economies and financial markets are likely to exert a permanent influence on our economic destiny. Length: 26 Creation-Date: 2020-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2015.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2015 Classification-JEL: C62, E12, E44 Keywords: Liquidity preference, endogenous money, finance dominance Handle: RePEc:pke:wpaper:PKWP2015 Template-Type: ReDIF-Paper 1.0 Author-Name: Eckhard Hein Author-Name-First: Eckhard Author-Name-Last: Hein Author-Email: eckhard.hein@hwr-berlin.de Author-Workplace-Name: Berlin School of Economics and Law (DE) Author-Name: Ryan Woodgate Author-Name-First: Ryan Author-Name-Last: Woodgate Title: Stability issues in Kaleckian models driven by autonomous demand growth – Harrodian instability and debt dynamics Abstract: Sraffian supermultiplier models, as well as Kaleckian distribution and growth models making use of non-capacity creating autonomous demand growth in order to cope with Harrodian instability, have paid little attention to the financial side of autonomous demand growth as the driver of the system. Therefore, we link the issue of Harrodian instability in Kaleckian models driven by non-capacity creating autonomous demand growth with the associated financial dynamics. For a simple model with autonomous government expenditure growth, zero interest rates and no consumption out of wealth, we find that adding debt dynamics does not change the results obtained by Lavoie (2016) for a model without debt, i.e. the long-run equilibrium is stable if Harrodian instability is not too strong and the autonomous growth rate does not exceed a maximum given by the long-run equilibrium saving rate. Introducing interest payments on government debt as well as consumption out of wealth into the model, however, changes the stability requirements: First, the autonomous growth rate of government expenditures should not fall short of the exogenous monetary interest rate. Second, this growth rate should not exceed a maximum given by the saving rate in long-run equilibrium minus the propensity to consume out of wealth. Third, Harrodian instability may be stronger than in the simple model without violating long-run overall stability, in particular, if the rate of interest is very low and the growth rate of government expenditures is close to the mentioned upper limit. We claim that, irrespective of the relevance or irrelevance of Harrodian instability, it is necessary to introduce financial variables into models driven by non-capacity creating autonomous demand in order to assess the long-run (in-)stability and sustainability of growth. Length: 23 Creation-Date: 2020-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2014_revised_NEPnsee.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2014 Classification-JEL: E11, E12, E25, E62 Keywords: Supermultiplier, autonomous demand growth, Kaleckian models, Harrodian instability, financial (in)stability Handle: RePEc:pke:wpaper:PKWP2014 Template-Type: ReDIF-Paper 1.0 Author-Name: Ignacio Ramirez Cisneros Author-Name-First: Ignacio Author-Name-Last: Ramirez Cisneros Author-Email: irv22@mail.umkc.edu Author-Workplace-Name: University of Missouri-Kansas City (US) Title: The odd fiscal ‘implicit bargain’ in the Eurozone. A continental view of sovereignty: List, Chartalism, and Keynes’ international economics Abstract: At present, the European customs and currency union finds itself in a transitional period. Without a path forward toward greater political unity, it has prematurely bound constituents by ‘hard law’ fiscal limitations (the Maastricht criteria, Stability and Growth pact, Fiscal Compact) not dissimilar to those applying to provinces, states, or Laender. In other words, it is caught in an odd 'implicit bargain’ (Goodhart) where members are expected to abide by de jure fiscal constraints with no central authority having the fiscal capabilities for stabilization, redistribution, and state-building (Arrighi) expenditures --all of which are indispensable in modern credit economies. The present paper makes use of European economic traditions reliant on statecraft to revisit the region's integration under the leitmotiv of economic sovereignty as a continental project. Specifically, we look at the work of List, Keynes, and the Chartalists. The work of F. List sets European economic unification in its historic place as a strategy founded in large part on exploiting economies of scale (demand and supply-side) by political and economic aggregation of smaller non-self sustaining economies into one market. This proposal for a new Continental System sought to lay the foundation for ‘catching-up’ or emulation of world economic leaders. Keynes’s international economics serves as the most useful orienting blueprint to begin to address the particularity of economic unification among sovereigns absent political unity. Chartalist insights into the political nature of central banks are of great value, and can help frame the European Central Bank's often clumsy attempts to hold together the Union within a broader scope. Despite its differential treatment of members thus far, the ECB could become a centerpiece institution in the consolidation of Europe as a self-sustaining pole of international effective demand. The overriding thematic principle encompassing the different authors (and traditions) discussed is that of European economic sovereignty in a region continuously struggling to balance political independence with economic co-dependence, and possibly unity. Length: 30 Creation-Date: 2020-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2013.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2013 Classification-JEL: B15, B52, E12, F15, F45 Keywords: sovereignty, eurozone, sovereign-constituent fiscal implicit bargain, continental political economy, international macroeconomic viability Handle: RePEc:pke:wpaper:PKWP2013 Template-Type: ReDIF-Paper 1.0 Author-Name: Robert A Blecker Author-Name-First: Robert Author-Name-Last: Blecker Author-Email: blecker@american.edu Author-Workplace-Name: American University (US) Author-Name: Michael Cauvel Author-Name-First: Michael Author-Name-Last: Cauvel Author-Name: Yun Kim Author-Name-First: Yun Author-Name-Last: Kim Title: Systems Estimation of a Structural Model of Distribution and Demand in the US Economy Abstract: Empirical studies of income distribution and aggregate demand using a structural modeling approach typically find that demand is wage-led in most large, advanced economies. These studies have been criticized for estimating the individual equations for consumption, investment, and net exports separately, treating total output and the wage share as exogenous, which could lead to simultaneity bias. This paper corrects for such possible bias as well as common shocks to the equations by using systems GMM estimation applied to annual US data for 1963-2016. This paper is also the first to provide separate estimates of nonresidential and residential investment functions and to distinguish the effects of shocks to different underlying determinants of the wage share (unit labor costs and firms' monopoly power). Surprisingly, the GMM estimates imply that private-sector aggregate demand is more, rather than less, wage-led (or in some cases, less profit-led) compared with OLS estimates of identically specified models. Length: 60 Creation-Date: 2020-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2012-merged.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2012 Classification-JEL: C36, E12, E25, N12, O51 Keywords: Income distribution, wage-led demand, profit-led demand, US economy, systems estimation Handle: RePEc:pke:wpaper:PKWP2012 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Kemp-Benedict Author-Name-First: Eric Author-Name-Last: Kemp-Benedict Author-Email: eric.kemp-benedict@sei.org Author-Workplace-Name: Stockholm Environment Institute (SE) Title: Macroeconomic impacts of the public health response to COVID-19 Abstract: The economic impact of public health measures to contain the COVID-19 novel coronavirus is a matter of contentious debate. Given the high uncertainties, there is a need for combined epidemiological-macroeconomic scenarios. We present a model in this paper for developing such scenarios. The epidemiological sub-model is a discrete-time matrix implementation of an SEIR model. This approach avoids known problems with the more usual set of continuous-time differential equations. The post-Keynesian macroeconomic sub-model is a stylized representation of the United States economy with three sectors: core, social (most impacted by social distancing), and hospital, which may experience excessive demand. Simulations with the model show the clear superiority of a rigorous testing and contact tracing regime in which infected individuals, symptomatic or not, are isolated. Social distancing leads to an abrupt and deep recession. With expanded unemployment benefits, the drop is shallower. When testing and contact tracing is introduced, social spending can be scaled back and the economy recovers quickly. Ending social distancing without a testing and tracing regime leads to a high death toll and severe economic impacts. Results suggest that social distancing and fiscal stimulus have had their desired effects of reducing the health and economic impacts of the disease. Length: 18 Creation-Date: 2020-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2011_revis.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2011 Classification-JEL: E00, E11, I18 Keywords: SARS-CoV-2; coronavirus; COVID-19; macroeconomy; post-Keynesian; SEIR model Handle: RePEc:pke:wpaper:PKWP2011 Template-Type: ReDIF-Paper 1.0 Author-Name: Stefan Ederer Author-Name-First: Stefan Author-Name-Last: Ederer Author-Email: stefan.ederer@wifo.ac.at Author-Workplace-Name: Austrian Institute of Economic Research (AT) Author-Name: Armon Rezai Author-Name-First: Armon Author-Name-Last: Rezai Title: Labour markets in a Post-Keynesian growth model: the effects of endogenous productivity growth and working time reduction Abstract: We study endogenous employment and distribution dynamics in a Post-Keynesian model of Kalecki-Steindl tradition. Productivity adjustments stabilize employment and the labour share in the long run: technological change allows firms to replenish the reserve army of workers in struggle over income shares and thereby keep wage demands in check. We discuss stability conditions and the equilibrium dynamics. This allows us to study how legal working time and its reduction affect the equilibrium. We find that a demand shock is likely to lower the profit share and increase the employment rate. A supply shock in contrast tends to have detrimental effects on employment and income distribution. Labour market institutions and a working time reduction have no long-term effect on growth, distribution and inflation in the model. The effects on the level of capital stock and output however are positive in a wage-led demand regime. Furthermore, an erosion of labour market institutions dampens inflation temporarily. The model provides possible explanations as to the causes of several current economic phenomena such as secular stagnation, digitalisation, and the break-down of the Philips curve. Length: 29 Creation-Date: 2020-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2010.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2010 Classification-JEL: D33, E12, E24, O40 Keywords: Post-Keynesian economics, productivity, technological change, income distribution, employment Handle: RePEc:pke:wpaper:PKWP2010 Template-Type: ReDIF-Paper 1.0 Author-Name: Filippo Gusella Author-Name-First: Filippo Author-Name-Last: Gusella Author-Email: filippo.gusella@unifi.it Author-Workplace-Name: None Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Testing fundamentalist-momentum trader financial cycles. An empirical analysis via the Kalman filter Abstract: This paper proposes an empirical test for Minskyan financial cycles in asset prices, driven by the interaction of fundamentalist and momentum traders. Both price strategies are unobserved and can be modelled in a state space model. We use the Kalman filter to identify the two pricing strategies and evaluate whether the conditions for the existence of cycles hold. The model is estimated for four major OECD countries, the UK, France, Germany and the USA, for equity and housing prices for the period 1970-2017 using annual data. We find evidence of cycles in the equity market for all four countries and for housing prices, in the UK, France and the USA but not in Germany. Our results provide empirical support for the existence of endogenous financial cycles on asset markets. Length: 32 Creation-Date: 2020-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2009_updated.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2009 Classification-JEL: C32, E32 Keywords: Financial cycles, Minsky, Momentum traders, Kalman filter Handle: RePEc:pke:wpaper:PKWP2009 Template-Type: ReDIF-Paper 1.0 Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Author-Email: karsten.kohler@kcl.ac.uk Author-Workplace-Name: University of Leeds Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Growing differently? Financial cycles, austerity, and competitiveness in growth models since the Global Financial Crisis Abstract: The paper contributes to the recent growth models debate through a cross-country analysis of growth drivers before and after the 2008 Global Financial Crisis (GFC). It argues that the widely used dichotomy of export-led versus (debt-financed) consumption-led growth has lost its usefulness since the GFC. The common method to identify those growth models through growth contributions can give misleading results after the GFC that led to sustained changes in the drivers of economic growth. The paper contends that Comparative Political Economy (CPE) neglects the unstable nature of financial growth drivers, effectively ignores fiscal policy, and overemphasises price competitiveness as a growth driver. It shows empirically that, first, debt-financed growth is cyclical and financial booms come with busts and debt overhang; second, post-GFC growth dynamics are strongly shaped by the fiscal policy reaction; third, price competitiveness through wage deflation has played a negligible role in driving growth. We conclude that CPE needs to broaden its analysis of growth drivers in order to understand how the GFC transformed growth models. Length: 48 Creation-Date: 2020-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/Kohler_Stockhammer_2020_PKES_-_Growing_differently.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2008 Classification-JEL: B50, O47, O57 Keywords: growth models, austerity, financial cycles, comparative political economy, post-Keynesian macroeconomics Handle: RePEc:pke:wpaper:PKWP2008 Template-Type: ReDIF-Paper 1.0 Author-Name: José Luis Oreiro Author-Name-First: José Luis Author-Name-Last: Oreiro Author-Email: joreiro@unb.br Author-Workplace-Name: None Author-Name: Luiz Fernando de Paula Author-Name-First: Luiz Fernando Author-Name-Last: de Paula Author-Name: João Pedro Heringer Machado Author-Name-First: João Pedro Author-Name-Last: Heringer Machado Title: Liquidity preference, capital accumulation and investment financing: Fernando Carvalho’s contributions to the Post-Keynesian paradigm Abstract: This paper assesses the main theoretical contributions by Fernando Cardim de Carvalho to the Post-Keynesian Economics Paradigm: his elucidation of the fundamental principles that define the concept of a monetary production economy; his analysis of decision-making under non-probabilistic uncertainty; his development of a portfolio choice theory in which the decision to invest is regarded as one of possible wealth accumulation strategies; his liquidity preference theory, including its application to banks’ portfolio allocations under uncertainty; and finally his analysis of the finance-funding circuit and its implications for the functioning of monetary economies. Length: 25 Creation-Date: 2020-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2007.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2007 Classification-JEL: B59, E12, E44 Keywords: Post-Keynesian theory; Keynes; monetary economics Handle: RePEc:pke:wpaper:PKWP2007 Template-Type: ReDIF-Paper 1.0 Author-Name: Santiago J. Gahn Author-Name-First: Santiago Author-Name-Last: Gahn Author-Email: santiago.gahn@uniba.it Author-Workplace-Name: Università Cattolica del Sacro Cuore (IT) Title: Is there a decreasing trend in capacity utilisation in the US economy? Some new evidence Abstract: Recent contributions have mentioned the possibility of a decreasing trend in capacity utilisation in the US since the 70's. However, no consensus has emerged on the empirical evidence. Comparing the rate of capacity utilisation of the Federal Reserve Board [FRB] with the Full Utilisation Rate [FUR] and the National Emergency Rate [NER] of the Census Bureau, new empirical evidence is shown confirming that there exists such a decreasing trend in capacity utilisation in the US economy, at least since 1989. Length: 17 Creation-Date: 2020-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2006.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2006 Classification-JEL: D24, E32 Keywords: Capacity utilisation, growth Handle: RePEc:pke:wpaper:PKWP2006 Template-Type: ReDIF-Paper 1.0 Author-Name: James Wood Author-Name-First: James Author-Name-Last: Wood Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: House prices, private debt and the macroeconomics of comparative political economy Abstract: Prevailing Comparative Political Economy accounts conceptualise the macroeconomic role of the financial sector in advanced economies either through the Varieties of Capitalism’s (VoC) emphasis on corporate finance or on the growth model perspective’s focus on household debt to support consumption. As neither framework accounts for the important macroeconomic influence of house prices and mortgage credit, we suggest the prevailing Comparative Political Economy accounts of the financial sector remain underdeveloped. Through an econometric evaluation of 18 advanced economies from 1980 to 2017, we demonstrate that household debt has larger and more statistically significant effects on GDP growth than business debt, and household debt volumes are largely determined by house price inflation. These results are consistent across the varieties of capitalism and advanced banking systems, suggesting the VoC’s focus on corporate finance is misplaced and the macroeconomic effects of household debt and house prices are underappreciated, especially in non-Anglo-American advanced economies. Length: 44 Creation-Date: 2020-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2005.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2005 Classification-JEL: N10 Keywords: Comparative political economy, macroeconomics; household debt, house prices Handle: RePEc:pke:wpaper:PKWP2005 Template-Type: ReDIF-Paper 1.0 Author-Name: Daniele Tavani Author-Name-First: Daniele Author-Name-Last: Tavani Author-Email: daniele.tavani@colostate.edu Author-Workplace-Name: Colorado State University (US) Author-Name: Luca Zamparelli Author-Name-First: Luca Author-Name-Last: Zamparelli Title: Labor-augmenting technical change and the labor share: New microeconomic foundations Abstract: An important question in alternative economic theories has to do with the relationship between the functional income distribution and the growth rate of labor productivity. According to both the induced innovation hypothesis and Marx-biased technical change, labor productivity growth should be an increasing function of the labor share. In this paper, we first discuss the shortcomings of both theories and then provide a novel microeconomic foundation for a direct relationship between the labor share and labor productivity growth. The result arises because of profit-seeking behavior by capitalist firms that face a trade-off between investing in new capital stock and innovating to save on labor costs. Embedding this finding in the Goodwin (1967) growth cycle model, we show that: i) the resulting steady state is locally stable, and ii) unlike in the original Goodwin model, the long-run employment rate is sensitive to investment decisions. Finally, iii) we numerically identify parametric configurations that establish whether convergence to the long-run growth path is cyclical or monotonic. Length: 19 Creation-Date: 2020-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2004_w5LYhAe.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2004 Classification-JEL: E32, O33 Keywords: Endogenous Technical Change, Income Shares, Employment. Handle: RePEc:pke:wpaper:PKWP2004 Template-Type: ReDIF-Paper 1.0 Author-Name: Mario Cassetti Author-Name-First: Mario Author-Name-Last: Cassetti Title: Fiscal policy as a long-run stabilization tool. Simulations with a stock-flow consistent model Abstract: This study examines the real and financial requirements of a regularly progressive economy driven by an autonomous evolution of public expenditure. The proposed model attempts to reconcile features of Kaleckian, Sraffian and horizontalist strands of post-Keynesian economics in a stock-flow consistent framework, which includes a banking sector and a central bank, as well as workers, rentiers,and firms. It focuses on the long-run convergence to a normal capacity utilization rate in a credit economy, where money is endogenous and the interest rate is kept stable by the central bank. The results show that an increase in public expenditure aimed at stabilizing economic activity on a higher long-run trend does not face significant financial constraints. However, the expansion may result in inflation and changes in the income distribution. Furthermore, resolving the conflict between robust steady growth and tolerable inflation rests on political and institutional changes, rather than on tightening fiscal and monetary policies. Rentiers and the financial sector have good reasons to resist expansionary fiscal policies, given the relative decline in the real value of their financial rents and activities caused by inflation and by improvements in the income share of wage earners. Length: 37 Creation-Date: 2020-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2003.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2003 Classification-JEL: E11, E12, E20, E25, E60 Keywords: Fiscal policy, Public debt, Income distribution, Supermultiplier, Kaleckian growth models, Stock-flow consistent models Handle: RePEc:pke:wpaper:PKWP2003 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Author-Name: Ben Tippet Author-Name-First: Ben Author-Name-Last: Tippet Title: Secular stagnation and core-periphery uneven development in post-crisis eurozone Abstract: In this paper, we analyse secular stagnation in the eurozone. We adopt a core-periphery perspective, and analyse whether the 2007-2008 financial crisis triggered off diverging dynamics in the growth potential of core and peripheral eurozone countries. We find that secular stagnation affects the whole eurozone, but is a much more serious concern in peripheral countries. Among the components of potential output, the NAIRU shows a worrisome diverging evolution since 2008. It has remained broadly constant in the core whilst doubling in the periphery. We find that the pronounced increase in the NAIRU in the periphery is strongly related to demand-side factors such as investment demand and fiscal consolidation rather than rigid labour market institutions. The negative effect that fiscal contractions may have on the NAIRU is a novel theoretical contribution of this paper. In line with these findings, we argue that reforms in the eurozone should focus on the creation of macroeconomic institutions ensuring convergence in financial and macroeconomic conditions among member countries rather than on the generalised deregulation of labour markets. Length: 24 Creation-Date: 2020-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2002.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2002 Classification-JEL: C23, E12, O11, O52 Keywords: Secular stagnation, uneven development, core-periphery, eurozone Handle: RePEc:pke:wpaper:PKWP2002 Template-Type: ReDIF-Paper 1.0 Author-Name: Rafael Wildauer Author-Name-First: Rafael Author-Name-Last: Wildauer Author-Email: r.wildauer@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Author-Name: Jakob Kapeller Author-Name-First: Jakob Author-Name-Last: Kapeller Title: A comment on fitting Pareto tails to complex survey data Abstract: Taking survey data on household wealth as our major example, this short paper discusses some of the issues applied researchers are facing when fitting (type I) Pareto distributions to complex survey data. The major contribution of this paper is twofold: First, we propose a new and intuitive way of deriving Gabaix and Ibragimov’s (2011) bias correction for Pareto tail estimations from which the generalization to complex survey data follows naturally. Second, we summarise how Kolmogorov-Smirnof and Cramer-von-Mises goodness of fit tests can be generalized to complex survey data. Taken together we think the paper provides a concise and useful presentation of the fundamentals of Pareto tail fitting with complex survey data. Length: 9 Creation-Date: 2020-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2001.pdf File-Format: Application/pdf File-Function: First version, 2020 Number: PKWP2001 Classification-JEL: C46, C83, D31 Keywords: Pareto distribution, complex survey data, wealth distribution Handle: RePEc:pke:wpaper:PKWP2001 Template-Type: ReDIF-Paper 1.0 Author-Name: Santiago J. Gahn Author-Name-First: Santiago Author-Name-Last: Gahn Author-Email: santiago.gahn@uniba.it Author-Workplace-Name: Università Cattolica del Sacro Cuore (IT) Author-Name: Alejandro González Author-Name-First: Alejandro Author-Name-Last: González Title: On the empirical content of the convergence debate: Cross country evidence on growth and capacity utilisation Abstract: In a quarterly unbalanced panel of 24 developed and developing countries, direct survey measures of capacity utilisation rates are stationary, positively correlated with growth in the short run and uncorrelated with growth in the long run. We show how these stylised facts are related to the `convergence debate', i.e. the inability of actual capacity utilisation to converge to its normal or desired value in the long-run: In the baseline Neo-Kaleckian model, while trend capacity utilisation is not restricted, it should be positively correlated with growth in the long-run; in contrast, the Sraffian Supermultiplier where capacity utilisation converges to its long-run exogenous value implies utilisation is stationary and uncorrelated with growth in the long-run. Although both models' empirical predictions in the short-run are confirmed, our results reject the baseline Neo-Kaleckian model in favor of the Sraffian Supermultiplier in the long-run. Length: 37 Creation-Date: 2019-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1922.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1922 Classification-JEL: C22, E11 Keywords: Neo-Kaleckian model, Supermultiplier, Capacity Utilisation, Stationary Handle: RePEc:pke:wpaper:PKWP1922 Template-Type: ReDIF-Paper 1.0 Author-Name: Rafael Wildauer Author-Name-First: Rafael Author-Name-Last: Wildauer Author-Email: r.wildauer@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Author-Name: Jakob Kapeller Author-Name-First: Jakob Author-Name-Last: Kapeller Title: Rank correction: a new approach to differential nonresponse in wealth survey data Abstract: This paper is concerned with the problem of modelling the tail of the wealth distribution with survey data in the context of differential nonresponse. In order to deal with the problem post data collection, it is standard practice to combine wealth survey data with observations from rich lists and then fit a Pareto tail. In contrast, our approach does not require information about individual wealth holdings from rich lists and is thus applicable in situations where such information is not available. Applying the procedure to wealth survey data (HFCS, SCF, WAS) yields estimates of top wealth shares, which are closely in line with estimates from the World Inequality Database and thus represent a likely improvement over the raw survey data. Length: 24 Creation-Date: 2019-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1921.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1921 Classification-JEL: C46, C81, D31 Keywords: differential nonresponse, Pareto tail, post data collection, survey data, wealth distribution Handle: RePEc:pke:wpaper:PKWP1921 Template-Type: ReDIF-Paper 1.0 Author-Name: Jose Luis Oreiro Author-Name-First: Jose Author-Name-Last: Oreiro Author-Email: joreiro@unb.br Author-Workplace-Name: Universidade de Brasília (BR) Author-Name: Kalinka Martins da Silva Author-Name-First: Kalinka Martins Author-Name-Last: da Silva Title: A new developmentalist model of structural change, economic growth and middle-income trap Abstract: Despite the growing literature on new developmentalism published in the last 5 years, which includes a textbook published in 2015, up to now the ideas of the Brazilian New Developmentalist School were no longer presented in terms of a coherent formal growth model. The main objective of the present article is precisely to fulfill this gap, presenting a formal model of structural change and economic growth according to the New Developmentalism theoretical propositions. The model to be presented here is, in a large sense, a synthesis between ideas presented by the Classical Development Theory and Post Keynesian Theory of Demand Led-Growth and can be used to explain the Middle-Income Trap (MIT), in which many developing countries seems to be stuck. According to Glawe and Wagner (2016) a MIT usually refers to countries that have experienced rapid growth and thus quickly reached middle-income status, but then failed to overcome that income range to further catch up to the developed countries. That was precisely the case of middle-income Latin American countries such as Brazil and Argentine. New developmentalism asserts that a MIT can occur in countries where Dutch disease suddenly appears due to the discovery of natural resources (for example, new petroleum reserves in Brazil after 2006) or ceased to be neutralized and/or the adoption of an external savings growth strategy. In both cases, real exchange rate overvaluation is the ultimate consequence of a class coalition between workers and the rentier class that favors exchange rate appreciation due to its positive effects over inflation and real wages, on one hand; and financial income, on the other (Bresser-Pereira, 2015). Length: 43 Creation-Date: 2019-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1920.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1920 Classification-JEL: O11, O14, O40 Keywords: New Developmentalism, Demand-Led Growth, Structural Change and Real Exchange Rate Handle: RePEc:pke:wpaper:PKWP1920 Template-Type: ReDIF-Paper 1.0 Author-Name: Stefan Ederer Author-Name-First: Stefan Author-Name-Last: Ederer Author-Email: stefan.ederer@wifo.ac.at Author-Workplace-Name: Austrian Institute of Economic Research (AT) Author-Name: Miriam Rehm Author-Name-First: Miriam Author-Name-Last: Rehm Title: Wealth inequality and aggregate demand Abstract: The paper investigates how including the distribution of wealth changes the demand effects of redistributing functional income. It develops a model with an endogenous wealth distribution and shows that the endogenous rise in wealth inequality resulting from a redistribution towards profits weakens the growth effects of this redistribution. Consequently, a wage-led regime becomes more strongly wage-led. A profit-led regime on the other hand becomes less profit-led and there may even be a regime switch – in this case the short-run profit-led economy becomes wage-led in the long run due to the endogenous effects of wealth inequality. The paper thereby provides a possible explanation for the instability of demand regimes over time. Length: 23 Creation-Date: 2019-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1918.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1918 Classification-JEL: D31, D33, E12, E21, E25, E64 Keywords: Wealth, Distribution, Aggregate Demand Handle: RePEc:pke:wpaper:PKWP1918 Template-Type: ReDIF-Paper 1.0 Author-Name: Victor Manuel Isidro Luna Author-Name-First: Victor Author-Name-Last: Isidro Luna Title: Development banking, state of confidence and sustainable growth Abstract: This article outlines the role of three types of development banks (communal, national, and multilateral) in promoting sustainable growth and development in the future. The 2007-2008 crisis made clear the need for: (1) heavy investment in developed as well as peripheral countries, and (2) coordinated financial institutions at the local, national, and international levels. Given a historical and spatial context, development banks can adopt different types of ownership (public or private), can target a myriad of specific sectors, and can promote local and international cooperation. We argue that for sustainable growth to be achieved, “confidence” has to be provided by public financial institutions. In our analysis we follow post-Keynesian ideas, which, considering the use of money with “social responsibility,” are thought to match the ideas of other heterodox approaches. Length: 23 Creation-Date: 2019-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1917_fRf3mSW.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1917 Classification-JEL: G10, G20 Keywords: Development Banks, 2007-2008 Crisis, State of Confidence, Post-Keynesian, Sustainable Growth Handle: RePEc:pke:wpaper:PKWP1917 Template-Type: ReDIF-Paper 1.0 Author-Name: Giancarlo Bertocco Author-Name-First: Giancarlo Author-Name-Last: Bertocco Author-Email: giancarlo.bertocco@uninsubria.it Author-Workplace-Name: University of Insubria (IT) Author-Name: Andrea Kalajzić Author-Name-First: Andrea Author-Name-Last: Kalajzić Title: A Keynes + Schumpeter model to explain development, speculation and crises Abstract: Recently, Dosi and his co-authors have developed a ‘Keynes+Schumpeter’ model which “endogenously generates self-sustained growth patterns together with persistent economic fluctuations ...”. The aim of this work is twofold. First, to show that the K+S model developed by Dosi and his co-authors does not allow to explain the instability that characterizes a capitalist economy. This limitation is due to the fact that the model overlooks some key elements of Schumpeter’s analysis. The second objective is to show that a solid K+S model can be built starting from the elements of Schumpeter’s theory neglected by Dosi and his co-authors. Length: 39 Creation-Date: 2019-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1916.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1916 Classification-JEL: O11, O16, O42 Keywords: bank money, innovations, crisis Handle: RePEc:pke:wpaper:PKWP1916 Template-Type: ReDIF-Paper 1.0 Author-Name: Michael Cauvel Author-Name-First: Michael Author-Name-Last: Cauvel Title: The neo-Goodwinian model reconsidered Abstract: This paper estimates the relationship between aggregate demand and the functional distribution of income in the U.S. economy using a series of aggregative VAR models. Like most previous aggregative studies, it finds evidence of Goodwin cycle effects—i.e. profit-led demand and a profit-squeeze effect—for the U.S. economy in baseline estimates using assumptions traditionally used in the aggregative literature. However, the results of other specifications suggest that these observed Goodwin cycle effects likely reflect a misinterpretation of procyclical variation in labor productivity—one of the main components of the wage share. When correcting for the cyclical effects of demand on productivity, the results differ dramatically; estimates are indicative of wage-led demand, and the effects of demand on distribution are mixed or insignificant. These findings suggest that evidence of Goodwin cycle effects is likely the result of biased estimates. Instead, it appears that the short-run relationship between the wage share and demand should be viewed as a combination of wage-led demand and procyclical productivity effects. Length: 67 Creation-Date: 2019-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1915.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1915 Classification-JEL: E11, E12, E25, E32 Keywords: Functional distribution of income, neo-Kaleckian model, wage-led and profit-led demand regimes Handle: RePEc:pke:wpaper:PKWP1915 Template-Type: ReDIF-Paper 1.0 Author-Name: Stefan Ederer Author-Name-First: Stefan Author-Name-Last: Ederer Author-Email: stefan.ederer@wifo.ac.at Author-Workplace-Name: Austrian Institute of Economic Research (AT) Author-Name: Maximilian Mayerhofer Author-Name-First: Maximilian Author-Name-Last: Mayerhofer Author-Name: Miriam Rehm Author-Name-First: Miriam Author-Name-Last: Rehm Title: Rich and ever richer: Differential returns across socio-economic groups Abstract: This paper estimates rates of return across the gross wealth distribution in eight European countries. Like differential saving rates, differential rates of return matter for Post Keynesian theory, because they impact the income and wealth distribution and add an explosive element to growth models. We show that differential rates of return matter empirically by merging data on household balance sheets with long-run returns for individual asset categories. We find that (1) the composition of wealth differentiates between three socioeconomic groups: 30% are asset-poor, 65% are middle-class home owners, and the top 5% are business-owning capitalists; (2) rates of return rise across all groups; and (3) rates of return broadly follow a log-shaped function across the distribution, where inequality in the lower half of the distribution is higher than in the upper half. If socioeconomic groups are collapsed into the bottom 95% workers and top 5% capitalists, then rates of return are 5.6% for the former and 7.2% for the latter. Length: 28 Creation-Date: 2019-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1914_2FO0h0F.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1914 Classification-JEL: D31, D33, E12, E21, E43 Keywords: rate of return, differential, wealth, distribution Handle: RePEc:pke:wpaper:PKWP1914 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Kemp-Benedict Author-Name-First: Eric Author-Name-Last: Kemp-Benedict Author-Email: E.J.Kemp-Benedict@leeds.ac.uk Author-Workplace-Name: Stockholm Environment Institute (SE) Title: Convergence of actual, warranted, and natural growth rates in a Kaleckian-Harrodian-classical model Abstract: This paper describes a dynamic one-sector macroeconomic model that draws on both post-Keynesian and classical/neo-Marxian themes. The model features an equilibrium in which Harrod's actual, warranted, and natural growth rates coincide. Dynamic processes unfolding over both short and long time scales lead the economy to exhibit both business cycles and long waves. The Keynesian stability condition is assumed not to hold, so the model features short-run instability, which is bounded from above by a utilization ceiling. Labor constraints affect distribution through conflict pricing. In contrast to other Kaleckian-Harrodian models, we do not assume an exogenous source of demand. Instead, short-run instability is bounded from below by firms' expectations that the downturn will eventually reverse. Length: 33 Creation-Date: 2019-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1913_SyAPLsB.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1913 Classification-JEL: B50, E32, O40 Keywords: Kaleckian, Harrodian, classical, neo-Marxian, cycles, long waves, technological change Handle: RePEc:pke:wpaper:PKWP1913 Template-Type: ReDIF-Paper 1.0 Author-Name: Yannis Dafermos Author-Name-First: Yannis Author-Name-Last: Dafermos Author-Name: Maria Nikolaidi Author-Name-First: Maria Author-Name-Last: Nikolaidi Title: Fiscal policy and ecological sustainability: A post-Keynesian perspective Abstract: Fiscal policy has a strong role to play in the transition to an ecologically sustainable economy. This paper critically discusses the way that green fiscal policy has been analysed in both conventional and post-Keynesian approaches. It then uses a recently developed post-Keynesian ecological macroeconomic model in order to provide a comparative evaluation of three different types of green fiscal policy: carbon taxes, green subsidies and green public investment. We show that (i) carbon taxes reduce global warming but increase financial risks due to their adverse effects on the profitability of firms and credit availability; (ii) green subsidies and green public investment improve ecological efficiency, but their positive environmental impact is partially offset by their macroeconomic rebound effects; and (iii) a green fiscal policy mix derives better outcomes than isolated policies. Directions for future heterodox macroeconomic research on the links between fiscal policy and ecological sustainability are suggested. Length: 43 Creation-Date: 2019-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1912_09FfXGo.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1912 Classification-JEL: E12, E62, Q54, Q57 Keywords: post-Keynesian economics, ecological economics, green fiscal policy, stock-flow consistent modelling Handle: RePEc:pke:wpaper:PKWP1912 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Title: Financialization and demand regimes in advanced economies Abstract: In this article, we analyze the implications of financialization for domestic demand formation by linking the concept of financialization to the post-Keynesian analysis of demand regimes. We examine how the financialization of households in advanced economies gave rise to distinct but interdependent demand regimes. In the Anglo-Saxon and southern European countries, financialization in the form of property price inflation and rising household debt contributed to the development of a debt-driven demand regime with large current account deficits. Economic development in eastern Europe was shaped by catching-up through foreign direct investment from northern Europe and accompanied by worsening current account positions. Northern Europe, in contrast, relied on an export-driven demand regime with a weaker role for financialization. The export-driven demand regime relies on the financialization of southern Europe and the Anglo-Saxon countries, which helped create export demand for northern Europe. We argue that this constellation of demand regimes gives rise to divergent economic performance and macroeconomic instability. While with deleveraging the growth effects of the debt-driven model have gone into reverse, the fundamental configuration has not changed since the crisis. Length: 25 Creation-Date: 2019-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1911.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1911 Classification-JEL: E02, E60 Keywords: Financialization, demand regimes, post-Keynesian economics Handle: RePEc:pke:wpaper:PKWP1911 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Palley Author-Name-First: Thomas Author-Name-Last: Palley Author-Email: mail@thomaspalley.com Author-Workplace-Name: Economics for Democratic and Open Societies (US) Title: Macroeconomics vs Modern Money Theory: Some unpleasant Keynesian arithmetic Abstract: The last decade has witnessed a significant revival of belief in the efficacy of fiscal policy and mainstream economics is now reverting to the standard positions of mid-1970s Keynesianism. On the coattails of that revival, increased attention is being given to the doctrine of Modern Money Theory (MMT) which makes exaggerated claims about the economic costs and capability of money-financed fiscal policy. MMT proponents are now asserting society can enjoy a range of large government spending programs for free via money financed deficits, which has made it very popular with progressive policy advocates. This paper examines MMT’s assertion and rejects the claim that the US can enjoy a massive permanent free program spree that does not cause inflation. As has long been known by Keynesians, in a static economy money financed deficits can be used to finance programs when the economy is away from the full employment - inflation boundary. However, that window will be temporary to the extent that those deficits drive the economy to full employment. Since the programs are permanent they have to be paid for with taxes or they will generate inflation. That is the economic logic behind the unpleasant Keynesian arithmetic. Length: 9 Creation-Date: 2019-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1910.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1910 Classification-JEL: E00, E12, E62, E63 Keywords: Fiscal policy, budget deficits, money finance Handle: RePEc:pke:wpaper:PKWP1910 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Author-Name: Eugenio Caverzasi Author-Name-First: Eugenio Author-Name-Last: Caverzasi Author-Name: Alberto Russo Author-Name-First: Alberto Author-Name-Last: Russo Title: When complexity meets finance: A contribution to the study of the macroeconomic effects of complex financial systems Abstract: In the last decade, complexity economics has emerged as a powerful approach to the understanding of the most relevant factors influencing economic development. The concept of economic complexity has been applied to the study of different economic issues such as economic growth, technological change and inequality. With this work we aim at extending the application of this concept to the study of the financial side of the economy, and, in particular, of the macroeconomic effects of rising financial complexity. In this paper, we present an agent-based model integrating an increasingly complex financial sector with a real side of the economy populated, among other sectors, by heterogeneous households. We test the systemic impact that the increasing complexity of both the financial system and the financial products it manufactures bear on economic growth, macroeconomic stability and inequality. We find mixed results with respect to the positive economic implications the existing literature ascribes to products complexity and deepening production capabilities. Despite higher financial complexity may lead to faster growth, our model suggests that this comes at the cost of heightened financial fragility, a more crisis-prone economic system, and increasing levels of income and wealth inequality. According to these findings, and consistently with pioneering insights from Minsky, we claim that rising complexity does not always entail positive consequences for the well-being of the economy. This is particularly true when it comes to financial innovations and financial complexity. Length: 25 Creation-Date: 2019-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1909.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1909 Classification-JEL: E44, G01, G23 Keywords: AB-SFC model, financial complexity, securitization Handle: RePEc:pke:wpaper:PKWP1909 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Christina Wolf Author-Name-First: Christina Author-Name-Last: Wolf Title: Building blocks for the macroeconomics and political economy of housing Abstract: Housing has played an essential part in the global financial crisis 2007-08 and the Euro crisis. Large parts of bank lending go to mortgages. Housing wealth is the largest part of wealth for most households and is, at the same time, more dispersed than other forms of wealth. House prices exhibit pronounced fluctuations that are closely linked to credit growth. Housing thus plays a crucial role in the macroeconomy, which has become even more pronounced under neoliberalism. We scrutinise different theoretical approaches to housing. Despite its theoretical shortcomings mainstream economics has pioneered empirical research on wealth effects in consumption and recently documented the role of house prices in financial cycles. Post-Keynesian theory emphasises endogenous money creation, cycles in asset prices and debt, and have formalised the notion of a debt-driven demand regime. Comparative Political Economy research has recently developed the concept of the varieties of residential capitalism, which has different structures of house ownership and housing finance at the core of political coalitions. Marxist political economy has long established the intrinsic link between ownership of land and economic rent and notes that homeownership can act as force of working class fragmentation. Wealth surveys can be used to trace the extent of conflicting interests in a class-relational approach. Length: 38 Creation-Date: 2019-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1908.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1908 Classification-JEL: E44, G01, P16, R30 Keywords: housing, household debt, finance, real estate prices, class analysis Handle: RePEc:pke:wpaper:PKWP1908 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Giorgos Gouzoulis Author-Name-First: Giorgos Author-Name-Last: Gouzoulis Author-Email: g.gouzoulis@bristol.ac.uk Author-Workplace-Name: University College London Author-Name: Rob Calvert Jump Author-Name-First: Rob Calvert Author-Name-Last: Jump Title: Debt-driven business cycles in historical perspective: The cases of the USA (1889-2015) and UK (1882-2010) Abstract: Minsky (1975) proposed a theory of endogenous cycles that results from the interaction of real and financial variables. Minsky’s work has inspired a growing body of literature on theoretical business cycle models, but relatively little work has been done in the empirical field. In particular, while interest in financial cycles has risen significantly after the 2007-8 financial crash, and recent empirical studies have explored the impact of debt on aggregate demand or its effect on the probability of financial crises, the literature does not test for endogenous cycle mechanisms. In contrast, the present paper investigates econometrically whether or not business cycles are driven by corporate debt and/or by mortgage debt. We estimate simple vector autoregressive moving average (VARMA) models, using historical macroeconomic data for the USA (1889-2015) and the UK (1882-2010). We find robust evidence of endogenous corporate debt-driven cycles for the USA, weak evidence of mortgage debt-driven cycles in the USA and no evidence of corporate or mortgage debt-driven cycles for the UK. Length: 23 Creation-Date: 2019-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1907_nuFSHGB.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1907 Classification-JEL: E22, G01 Keywords: Minsky cycles, corporate debt, mortgage debt, business cycles, historical data Handle: RePEc:pke:wpaper:PKWP1907 Template-Type: ReDIF-Paper 1.0 Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Title: Exchange rate dynamics, balance sheet effects, and capital flows. A Minskyan model of emerging market boom-bust cycles Abstract: The paper provides a dynamic Minskyan open economy model of endogenous boom-bust cycles in emerging market economies, which explains the empirically observed procyclicality of exchange rates and the countercyclicality of the trade balance. It highlights the interaction of exchange rate dynamics and balance sheets. Currency appreciation makes firm balance sheets with foreign currency debt more solid. Throughout the resulting boom phase, the current account position worsens. Pressures on the domestic exchange rate mount until the currency depreciates. Contractionary balance sheet effects then set in as domestic firms face a drop in their nominal net worth. If capital inflows are driven by exogenous risk appetite, these fluctuations can assume the form of shock-independent endogenous cycles. An exogenous increase in risk appetite increases the volatility of the cycle. We find that financial account regulation can help reduce macroeconomic volatility and that the larger the risk appetite, the more financial account regulation is required to achieve this. Length: 42 Creation-Date: 2019-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1906.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1906 Classification-JEL: E11, E12, F36, F41 Keywords: Business cycles, boom-bust cycles, emerging market economies, Minsky Handle: RePEc:pke:wpaper:PKWP1906 Template-Type: ReDIF-Paper 1.0 Author-Name: Giancarlo Bertocco Author-Name-First: Giancarlo Author-Name-Last: Bertocco Author-Name: Andrea Kalajzić Author-Name-First: Andrea Author-Name-Last: Kalajzić Title: The Great Recession and the teaching of macroeconomics: A critical analysis of the Blanchard, Amighini and Giavazzi textbook Abstract: The publication of the seventh edition of Blanchard’s textbook (Blanchard 2017) and of the third edition of the textbook authored by Blanchard, Amighini and Giavazzi (2017) represents a significant opportunity to assess the impact of the Great Recession on macroeconomic theory and on the teaching of macroeconomics. The authors acknowledge that the mainstream economic model presented in the previous editions of their textbooks is unable to offer a significant explanation of the causes of the crisis as it completely neglects the role of the financial system. They believe that the economics profession has learned the lesson of the crisis since economists understood the limitations of the theoretical model elaborated over the last decades. In the revised editions of their textbooks they present a new theoretical model taking into account the financial system. The objective of this work is twofold: i) to show that the new model does not allow to elaborate a coherent explanation of the Great Recession and: ii) to present the pillars of an alternative theoretical model based on the lessons of Keynes, Schumpeter and Minsky. Length: 31 Creation-Date: 2019-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1905.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1905 Classification-JEL: E10, E20, E30, E40, E44 Keywords: Financial markets, Crises, Keynes, Schumpeter, Minsky Handle: RePEc:pke:wpaper:PKWP1905 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Coupling cycle mechanisms: Minsky debt cycles and the multiplier-accelerator Abstract: While there exists a substantial literature on different business cycle mechanisms, there is little literature on economies with more than one business cycle mechanism operating and the relation of stability of these subsystems with the stability of the aggregate system. We construct a model where a multiplier-accelerator subsystem in output-investment space (a real cycle) and a Minskyian subsystem in investment-debt space (a financial cycle) can generate stable/unstable cycles in 2D in isolation. We then derive a theorem showing that if two independent cycle mechanisms that generate stable closed orbits in 2D share a self-destabilizing common variable and the true representation of the system is a fully-coupled 3D system where a weighted average of the common variable is in effect, then the 3D system will generate locally stable closed orbits in 3D if and only if the subsystems have the same frequencies and/or the self-destabilizing effects of the common variable evaluated at the fixed point are equal in both subsystems. Our results indicate that in the presence of multiple cycle mechanisms which share common variables in an economy, the stability of the aggregate economy crucially depends on the frequencies of these sub-cycle mechanisms. Length: 41 Creation-Date: 2019-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1904.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1904 Classification-JEL: C32, E32, E44 Keywords: Business cycles, Minsky models, multiplier-accelerator Handle: RePEc:pke:wpaper:PKWP1904 Template-Type: ReDIF-Paper 1.0 Author-Name: Daniele Tavani Author-Name-First: Daniele Author-Name-Last: Tavani Author-Email: daniele.tavani@colostate.edu Author-Workplace-Name: Colorado State University (US) Author-Name: Luke Petach Author-Name-First: Luke Author-Name-Last: Petach Title: Firm beliefs and long-run demand effects in a labor-constrained model of growth and distribution Abstract: One of the most debated questions in alternative macroeconomics regards whether demand policies have permanent or merely transitory effects. While Kaleckian ecoomists have argued that demand matters even in the long run, both economists operating within other Keynesian traditions (e.g. Skott, 1989) as well as Classical economists argue that in the long-run output growth is constrained by the so-called natural rate. This paper attempts to bridge the gap by analyzing the role of firm beliefs about the state of the economy in a labor-constrained growth and distribution model based on Kaldor (1956) and Goodwin (1967) but featuring an explicitly dynamic choice of capacity utilization. We show that: (i) the relevance of such beliefs generates an inefficiently low utilization rate and labor share in equilibrium; but (ii) the efficient utilization rate can be implemented through fiscal policy. Under exogenous technical change, (iii) the inefficiency does not affect equilibrium employment and growth, but expansionary fiscal policy has positive level effects on both GDP and the labor share. Conversely, (iv) with an endogenous bias of technical change, fiscal policy will have not just level effects but also long-run effects on labor productivity growth and the employment rate. Finally, (v) the fact that the choice of utilization responds to income shares has a stabilizing effect on growth cycles, even under exogenous technical change, that is analogous to factor substitution. Length: 20 Creation-Date: 2019-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1903.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1903 Classification-JEL: E12, E22, E25, E62 Keywords: Beliefs, Capacity Utilization, Coordination Failures, Factor Shares, Fiscal Policy Handle: RePEc:pke:wpaper:PKWP1903 Template-Type: ReDIF-Paper 1.0 Author-Name: Hiroshi Nishi Author-Name-First: Hiroshi Author-Name-Last: Nishi Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Demand and distribution regimes, output hysteresis, and cyclical dynamics in a Kaleckian model Abstract: This study analyses the interaction of demand, income distribution, and natural output level in a dynamic Kaleckian model with output hysteresis. Hysteresis means that the natural output level depends on the path of the demand-driven actual output level. We consider wage-led and profit-led demand regimes and goods market-led and labour market-led income distribution regimes. We find that the stability of the steady state is closely related to hysteresis in certain regimes. Limit cycles can arise when the strong flexibility of either prices or wages to the output gap is combined with a moderate degree of natural output hysteresis. We make the persuasive case that a Kaleckian model with a wage-led demand regime and anticyclical profit share is less unstable and that pseudo-Goodwin cycles can arise in the profit-led demand regime with a procyclical profit share. Length: 38 Creation-Date: 2019-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1902.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1902 Classification-JEL: D33, E12, E32 Keywords: Hysteresis, Natural output level, Demand regime, Income distribution Handle: RePEc:pke:wpaper:PKWP1902 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Palley Author-Name-First: Thomas Author-Name-Last: Palley Title: The fracturing of globalization: Implications of economic resentments and geopolitical contradictions Abstract: The last forty years have witnessed a third wave of globalization which can be termed “neoliberal globalization”. Now, there are indications that the era of neoliberal globalization might be drawing to a close, as evidenced by the trade war between the US and China. This paper argues the fracturing of neoliberal globalization reflects the growing impact of economic resentments and geopolitical contradictions. The paper presents a simple analytical framework that constructs the global economy in terms of a core consisting of the US, China, and the EU. It then examines how globalization creates economic resentments and geopolitical tensions within and between members of the core, thereby fracturing globalization. The rise of US – China geopolitical competition promises to twist the character of the global economic order, which stands to be shaped by strategically motivated economic integrations and recalibrations rather than generalized global economic integration. The paper then extends the analysis to non-core country blocs and examines how they are impacted by globalization and the rise of US – China geopolitical competition. Length: 23 Creation-Date: 2019-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1901.pdf File-Format: Application/pdf File-Function: First version, 2019 Number: PKWP1901 Classification-JEL: F02, F50, F59 Keywords: Neoliberal globalization, economic resentments, geopolitical contradictions. Handle: RePEc:pke:wpaper:PKWP1901 Template-Type: ReDIF-Paper 1.0 Author-Name: Eugenio Caverzasi Author-Name-First: Eugenio Author-Name-Last: Caverzasi Author-Name: Daniele Tori Author-Name-First: Daniele Author-Name-Last: Tori Title: The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis Abstract: Neo-Schumpeterian economics inspired by the work of Schumpeter and the financial Keynesianism of Minsky are often regarded as unrelated theoretical strands. In this paper, we try to combine these two literatures building on a parallelism between non-financial and financial firms. We focus on recent financial innovations, highlighting how the evolution experienced by US financial institutions led them to transcend their traditional role of credit providers, shaping as 'producers' of financial products, through securitization. This allows on the one hand to broaden the application of Neo-Schumpeterian insights to the financial sector and, on the other, to provide an original explanation of the so-called sub-prime crisis by applying the Financial Instability Hypothesis of Minsky to the alternative context of financial production. We maintain that the 2007-8 crisis was not the result of an innovation in the real sector, but came from an innovation (or a series of innovations) intrinsic to the financial system itself, which fostered credit creation. We argue that this 'cluster of innovations' can be placed under the label 'securitization', defined as the business of packaging and reselling loans, with repo agreements as the main source of funds. Length: 32 Creation-Date: 2018-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1815.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1815 Classification-JEL: B52, G21, O33 Keywords: Minsky, Schumpeter, securitization, financial firms, Great Financial Crisis Handle: RePEc:pke:wpaper:PKWP1815 Template-Type: ReDIF-Paper 1.0 Author-Name: Santiago J. Gahn Author-Name-First: Santiago Author-Name-Last: Gahn Author-Email: santiago.gahn@uniba.it Author-Workplace-Name: Università Cattolica del Sacro Cuore (IT) Author-Name: Alejandro González Author-Name-First: Alejandro Author-Name-Last: González Title: On the “utilisation controversy”: a comment Abstract: In a recent contribution, Nikiforos (2016) has claimed that the FED data on capacity utilisation is stationary by construction, and thus, not suitable to test the Neo-Kaleckian model. He then proceeds to provide new series on capital utilisation, which he claims are non-stationary and provide, supposedly, support for the Neo-Kaleckian model. This comment presents two interrelated claims. First, the measurement error that Nikiforos claims to be I(1) in the FED series is I(0), and what is measured with error is only the level of the series. Thus, this series is suitable to test the Neo-Kaleckian model. Secondly, he does not provide unit root tests for the series he suggests as superior to the FED. When this exercise is carried out, almost all unit root tests decidedly reject the existence of a stochastic trend on his 3 proposed series, which, according to the author, do not lend support to the Neo-Kaleckian model. We conclude that measures of capacity utilisation based on FRB data are a reasonable source to test the implications of a wide variety of macroeconomic models. Length: 6 Creation-Date: 2018-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1814.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1814 Classification-JEL: C22, E11 Keywords: Neo-Kaleckian model, Capacity Utilisation, Stationarity, Workweek of Capital Handle: RePEc:pke:wpaper:PKWP1814 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Syed Mohib Ali Author-Name-First: Syed Mohib Author-Name-Last: Ali Title: Varieties of Capitalism and post-Keynesian economics on Eurocrisis Abstract: The 2008 global financial crisis that began in the US housing sector mutated into a sovereign debt crisis and an economic depression for countries in southern Europe, threatening the very existence of the Eurozone. The paper contrasts analyses of the eurocrisis based on the Varieties of Capitalism (VoC) approach and post-Keynesian analysis. The VoC analysis has argued that the eurocrisis is ultimately a crisis of incompatible institutional settings, in particular wage bargaining institutions, tied together in a monetary union. The Mediterranean Market Economies lack the institutional capacities to restrain wage growth. The Coordinated Market Economies (in northern Europe) have managed to maintain modest wage growth and inflation because export-oriented sectors play the role of wage leader. Post-Keynesian analysis has interpreted the crisis as the outcome of the unsustainable growth models and neoliberal policies in Europe; i.e. a neo-mercantilist export-led demand regime in the North and a debt-driven demand regime in the South and the EMU policies of financial deregulation that accompanied European economic integration. What is specific to the Euro area is the absence of adequate central fiscal stabilization or effective lender of last resort facility for the member countries. The ECB was hesitant in its unconventional monetary policy and began buying government bonds of countries under pressure only at a late stage of the crises. The imbalances resulted in a full blown sovereign debt crisis. We argue that the VoC analysis has important shortcomings as it focuses excessively on labour market institutions and that the post-Keynesian approach integrates financial factors and economic policy in explaining the crisis. Length: 16 Creation-Date: 2018-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1813_iwmBUZS.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1813 Classification-JEL: B00, E02, E12, E60, F45, G01, P50 Keywords: Varieties of Capitalism, Post-Keynesian economics, Eurocrisis Handle: RePEc:pke:wpaper:PKWP1813 Template-Type: ReDIF-Paper 1.0 Author-Name: Paula Marina Sarno Author-Name-First: Paula Marina Author-Name-Last: Sarno Author-Name: Norberto Montani Martins Author-Name-First: Norberto Author-Name-Last: Martins Title: Derivatives, financial fragility and systemic risk: lessons from Barings Bank, Long-Term Capital Management, Lehman Brothers and AIG Abstract: This paper aims at analysing the relationship among derivatives, financial fragility and systemic risk by discussing the role played by these financial instruments in the collapse or near-collapse of Barings Bank, Long-Term Capital Management (LTCM), Lehman Brothers and AIG. We investigate in which ways derivatives contributed to the build-up of systemic risks in these experiences according to a Post-Keynesian perspective, which is focused on the Minskyian concept of financial fragility and Cardim de Carvalho’s analysis of contagion and systemic risk. Our analysis points out that derivatives’ embedded leverage played a pivotal role in fragilizing the financial positions of Barings, LTCM and AIG, and a supporting role in Lehman’s failure, accelerating its financial debacle. While Barings’ failure did not cause contagion nor systemic consequences via derivative markets, in the case of Lehman derivatives worked as a major mechanism of contagion and contributed to the materialization of a systemic crisis. Yet, concerns on potential contagion effects via derivatives in the cases of LTCM (indirect) and AIG (direct) provided reasons for setting up the bailouts that avoided the collapse of these institutions. Finally, we highlight that, if speculative and Ponzi financing positions are widespread, instead of cushioning financial shocks, derivatives might fragilize even more financial institutions and disseminate difficulties among the financial system, therefore contributing to a systemic crisis to take place. Length: 34 Creation-Date: 2018-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1812_LWHiKg1.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1812 Classification-JEL: G01, G29, G30 Keywords: Financial Crisis, Financial Fragility, Contagion, Systemic Risk, Derivatives, Barings Bank, LTCM, Lehmann Brothers, AIG Handle: RePEc:pke:wpaper:PKWP1812 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Bengtsson Author-Name-First: Eric Author-Name-Last: Bengtsson Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: King’s College London Title: Wages, income distribution and economic growth in Scandinavia Abstract: Wage restraint plays an important role in the conventional economic history explanation of the post-war golden growth experience of industrialized economies. Conversely, wage increases harming investment and increasing unemployment have been proffered as explanations for some of the high unemployment during the interwar period. This article argues that the conventional account implicitly only considers effects of wage growth on investment and not the advantageous effects on consumption. Thus, the evaluation of the effects on GDP growth is lop-sided. We employ a Post-Keynesian model to estimate effects of growth in the wage share of national income on consumption, investment, exports and imports separately, and weigh the effects together to estimate total effects on GDP growth, in Scandinavia (Denmark, Norway and Sweden) 1900–2010. Furthermore, we estimate the positive effects of wage pressure on productivity, showing it to be significant and positive in all three countries. We show that the postwar wage push had small positive effects on GDP growth in Denmark and Sweden, and a small negative effect in Norway. Thus, wage restraint is not a valid explanation for the postwar growth miracle. We propose a more comprehensive macroeconomic framework for understanding the implications of labour-capital distribution. Length: 29 Creation-Date: 2018-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1811.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1811 Classification-JEL: E12, N10, N14 Keywords: functional income distribution, inequality, consumption, investment, Scandinavia, Bhaduri-Marglin model, economic history Handle: RePEc:pke:wpaper:PKWP1811 Template-Type: ReDIF-Paper 1.0 Author-Name: Josh Ryan-Collins Author-Name-First: Josh Author-Name-Last: Ryan-Collins Author-Name: Frank van Lerven Author-Name-First: Frank Author-Name-Last: van Lerven Author-Email: None Author-Workplace-Name: None Title: Bringing the helicopter to ground: a historical review of fiscal-monetary coordination to support economic growth in the 20th century Abstract: In the face of the perceived high public and private debt levels and sluggish recovery that has followed the financial crisis of 2007-08, there have been calls for greater fiscal-monetary coordination to stimulate nominal demand. Policy debates have been focused upon the inflationary expectations that may be generated by monetary financing or related policies, consistent with New Consensus Macroeconomics theoretical frameworks. Historical examples of fiscal-monetary policy coordination have been largely neglected, along with alternative theoretical views, such as post-Keynesian perspectives that emphasise uncertainty and demand rather than rational expectations. This paper begins to address this omission. First, we provide an overview of the holdings of government debt by both central banks and commercial banks as an imperfect but still informative proxy for fiscal-monetary coordination in advanced economies in the 20th century. Second, we develop a new typology of forms of fiscal-monetary coordination that includes both direct and less direct forms of monetary financing, illustrating this with case-study examples. In particular, we focus on the 1930s-1970s period when central banks and ministries of finance cooperated closely, with less independence accorded to monetary policy and greater weight attached to fiscal policy. We find a number of cases where fiscal-monetary coordination proved useful in stimulating economic growth, supporting industrial policy objectives and managing public debt without excessive inflation. Length: 31 Creation-Date: 2018-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1810.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1810 Classification-JEL: B22, B25, E02, E12, E14, E31, E42, E51, E52, E58, E63, N12, N22, O43 Keywords: monetary policy, monetary financing, inflation, central bank independence, fiscal policy, debt, credit creation Handle: RePEc:pke:wpaper:PKWP1810 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: King’s College London Title: Demand regimes, financialisation and hysteresis. New Keynesian and post-Keynesian macroeconomic underpinnings of the Varieties of Capitalism Abstract: The recent integration of post-Keynesian insights into Comparative Political Economy is an exciting development. Post-Keynesian theory differs from neoclassical and Marxist theories in its analysis of the role of income distribution and of finance. It allows for wage-led demand regimes and it regards finance to be endogenously created and a source of instability. The paper contributes to the debate on the integration of demand regimes in the Varieties of Capitalism analyses. It contrasts post-Keynesian theory to the New Keynesian three equation model. It highlights that post-Keynesian theory gives prominence to the role of income distribution and allows for wage-led demand regimes; financial variables play a key role, which gives rise to endogenous instability and financial cycles (Minskyan debt cycles); economic growth is regarded as a path dependent process (with unemployment hysteresis due to wage norms) and is not anchored in a supply side equilibrium. However, PKE has so far mostly provided a normative analysis of government interventions. The ability to generate income and wealth rather than competitiveness is regarded as key criteria for a viable variety of capitalism. Length: 16 Creation-Date: 2018-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1809_ZaB83In.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1809 Classification-JEL: E02, E12, P50 Keywords: Varieties of Capitalism, post-Keynesian economics, financialisation Handle: RePEc:pke:wpaper:PKWP1809 Template-Type: ReDIF-Paper 1.0 Author-Name: Stefan Ederer Author-Name-First: Stefan Author-Name-Last: Ederer Author-Email: stefan.ederer@wifo.ac.at Author-Workplace-Name: Austrian Institute of Economic Research (AT) Author-Name: Miriam Rehm Author-Name-First: Miriam Author-Name-Last: Rehm Title: Making sense of Piketty’s ‘fundamental laws’ in a Post-Keynesian framework Abstract: Piketty’s main theoretical prediction is that a small elite will own all wealth if capitalism is left to its own devices. We formulate and calibrate a Post-Keynesian model with an endogenous distribution of wealth between workers and capitalists. The model permits Piketty’s corner solution of all wealth held by capitalists; however, it also shows that interior solutions with a stable, non-zero wealth share of workers, a stable wealth-to-income ratio, and a stable and positive gap between the profit and the growth rate determined by the Cambridge equation. Furthermore, simulations show that the model conforms to Piketty’s empirical findings in a transitional phase, in which the wealth share of capitalists rises to over 60%, the wealth-to-income ratio increases, and income inequality rises. Finally, we show that the introduction of a wealth tax as suggested by Piketty could neutralize the rise in wealth concentration. Length: 26 Creation-Date: 2018-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1808_1BcTTCs.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1808 Classification-JEL: C63, D31, E12, E21 Keywords: Post-Keynesian, model, wealth, saving, inequality, Piketty, simulation Handle: RePEc:pke:wpaper:PKWP1808 Template-Type: ReDIF-Paper 1.0 Author-Name: Eugenio Caverzasi Author-Name-First: Eugenio Author-Name-Last: Caverzasi Author-Name: Alberto Russo Author-Name-First: Alberto Author-Name-Last: Russo Author-Email: alberto.russo@univpm.it Author-Workplace-Name: Università Politecnica delle Marche (IT) Title: Toward a new microfounded macroeconomics in the wake of the crisis Abstract: The Great Recession that followed the financial crisis of 2007 is not only the largest economic crisis after the Great Depression of the 1930s, it also signals a crisis of economics as a discipline. This is not only the consequence of the inadequacy of mainstream macroeconomics, and specifically the DSGE workhorse model, to forecast such a huge event, or at least to detect the worrying tendencies towards it. Even more relevant is the choice to explicitly avoid the modelling of large crises (that for someone is a motivation for not attacking pre-crisis DSGE models focused on the analysis of small deviations from the steady-state), so denying the intrinsic nature of capitalism, a system that necessarily proceeds through cycles and (extended) crises. The replies of the DSGE approach to critics have led to extensions regarding for instance the role of financial frictions, heterogeneous agents, and bounded rationality (though typically in the form of quasi-rational expectations). The alternative paradigm of Agent-Based Macroeconomics can take into account all these elements at once within an evolutionary modelling framework based on heterogeneity and interaction, so capable to endogenously reproduce complex dynamics, from small fluctuations to large crises, due to innovation and industrial dynamics, rising inequality and financial instability, and so on. The integration between Agent-Based Macroeconomics and the (post-Keynesian) Stock-Flow Consistent approach represents a promising way for the future development of this research field. Length: 30 Creation-Date: 2018-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1807_Z3On8yJ.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1807 Classification-JEL: B16, B40, B50, C60, E12, E44 Keywords: Agent-Based macro modelling, Stock-Flow-Consistent modelling, microfoundation, heterodox economics Handle: RePEc:pke:wpaper:PKWP1807 Template-Type: ReDIF-Paper 1.0 Author-Name: Hanna Karolina Szymborska Author-Name-First: Hanna Author-Name-Last: Szymborska Author-Email: hanna.szymborska@open.ac.uk Author-Workplace-Name: Open University Title: Household wealth structures and position in the income distribution – econometric analysis for the USA, 1989-2013 Abstract: This paper empirically investigates the relationship between household wealth composition and income inequality in the USA between 1989-2013. Interactions between wealth accumulation and income are a vital driver of inequality in capitalist economies. But not enough is known about which types of wealth are more conducive to sustained improvements in household’s position in the income distribution. This paper contributes to the literature by estimating how accumulation of different forms of wealth influences income inequality. Using linear regression analysis and non-parametric median slope estimation with data from the U.S. Survey of Consumer Finances between 1989-2013, we find a statistically significant relationship between household balance sheet composition and position in the distribution of income relative to the median. Greater share of primary residence and low- yielding transaction accounts in total asset portfolio, and higher contribution of unsecured debt to overall debt holdings are found to push households away from the median towards the bottom of the income distribution. Higher relative accumulation of business equity, high-yielding financial investment assets, secured debt, retirement and insurance assets, and other property are found to pull households further away from the median towards the top of the income distribution. The latter effects are found not to be shared equally across gender, racial, and intergenerational groups. Length: 45 Creation-Date: 2018-06 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1806_QxNl3bI.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1806 Classification-JEL: C23, D14, D31, J15, J16 Keywords: Income inequality; Households Wealth; Linear regression; Non-parametric estimation Handle: RePEc:pke:wpaper:PKWP1806 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Joel Rabinovich Author-Name-First: Joel Author-Name-Last: Rabinovich Author-Name: Niall Reddy Author-Name-First: Niall Author-Name-Last: Reddy Title: Distribution, wealth and demand regimes in historical perspective. USA, UK, France and Germany, 1855-2010 Abstract: Most empirical macroeconomic research limited to the period since World War II. This paper analyses the effects of changes in income distribution and in private wealth on consumption and investment covering a period from as early as 1855 until 2010 for the UK, France, Germany and USA, based on the dataset of Piketty and Zucman (2014). We contribute to the post-Keynesian debate on the nature of demand regimes, mainstream analyses of wealth effects and the financialisation debate. We find that overall domestic demand has been wage-led in the USA, UK and Germany. Total investment responds positively to higher wage shares, which is driven by residential investment. For corporate investment alone, we find a negative relation. Wealth effects are found to be positive and significant for consumption in the USA and UK, but weaker in France and Germany. Investment is negatively affected by private wealth in the USA and the UK, but positively in France and Germany. Length: 52 Creation-Date: 2018-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1805_QBmpiEk.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1805 Classification-JEL: B50, E11, E12, E20, E21, N10 Keywords: historical macroeconomics, demand regimes, Bhaduri-Marglin model, wealth effects, financialisation Handle: RePEc:pke:wpaper:PKWP1805 Template-Type: ReDIF-Paper 1.0 Author-Name: Giorgos Galanis Author-Name-First: Giorgos Author-Name-Last: Galanis Author-Email: g.galanis@gold.ac.uk Author-Workplace-Name: Goldsmiths, University of London Author-Name: Ashok Kumar Author-Name-First: Ashok Author-Name-Last: Kumar Title: A dynamic spatial model of global governance structures Abstract: This paper presents a novel understanding of the changing governance structures in global supply chains. Motivated by the global garment sector, we develop a geographical political economy dynamic model which reflects the interaction between bargaining power and distribution of value among buyer and producer firms. We find that the interplay between these two forces, in combination with the spatial specificities of global production, are necessary and sufficient to drive governance structures towards an intermediate position regarding their level of explicit coordination and power asymmetry. Length: 43 Creation-Date: 2018-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1804_E2hszGO.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1804 Classification-JEL: D02, D43, E32, F60, R10 Keywords: Global value chains, global production networks, uneven development, disequilibrium dynamics, monopsony power Handle: RePEc:pke:wpaper:PKWP1804 Template-Type: ReDIF-Paper 1.0 Author-Name: Glennie Lauren Moore Author-Name-First: Glennie Author-Name-Last: Moore Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: The drivers of household indebtedness re-considered: an empirical evaluation of competing arguments on the macroeconomic determinants of household indebtedness in OECD countries Abstract: Household debt is at a record high in most OECD countries and it played a crucial role in the recent financial crisis. Several arguments on the macroeconomic drivers of household debt have been put forward, and most have been empirically tested, albeit in isolation of each other. This paper empirically tests seven competing hypotheses on the macroeconomic determinants of household indebtedness together in one econometric study. Existing arguments suggest that residential house prices, upward movements in the prices of assets demanded by households, the income share of the top 1%, falling wages, the rolling back of the welfare state, the age structure of the population and the short-term interest rate drive household indebtedness. We formulate these arguments as hypotheses and test them for a panel of 13 OECD countries over the period 1993 - 2011 using error correction models. We also investigate whether effects differ in boom and bust phases of the debt and house price cycles. The results show that the most robust macroeconomic determinant of household debt is real residential house prices, and that the phase of the debt and house price cycles plays a role in household debt accumulation. Length: 36 Creation-Date: 2018-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1803.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1803 Classification-JEL: E19, E21, R20 Keywords: household debt, house prices, cycles Handle: RePEc:pke:wpaper:PKWP1803 Template-Type: ReDIF-Paper 1.0 Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Author-Email: k.kohler@leeds.ac.uk Author-Workplace-Name: University of Leeds Author-Name: Alexander Guschanski Author-Name-First: Alexander Author-Name-Last: Guschanski Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: The impact of financialisation on the wage share: a theoretical clarification and empirical test Abstract: It is frequently asserted that financialisation has contributed to the decline in the wage share. This paper provides a theoretical clarification and a systematic empirical investigation. We identify four channels through which financialisation can affect the wage share: (1) enhanced exit options of firms; (2) rising price mark-ups due to financial overhead costs for businesses; (3) increased competition on capital markets and shareholder value orientation; and (4) the role of household debt in increasing workers’ financial vulnerability and undermining their class consciousness. The paper compiles a comprehensive set of empirical measures of financialisation and uses it to test these hypotheses with a panel regression of 14 OECD countries over the 1992-2014 period. We find strong evidence for negative effects of financial liberalisation and financial payments of non-financial corporations on the wage share that are in the same order of magnitude as the effects of globalisation. Length: 39 Creation-Date: 2018-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1802_MQ1APLF.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1802 Classification-JEL: E25, F65 Keywords: financialization, income distribution, political economy Handle: RePEc:pke:wpaper:PKWP1802 Template-Type: ReDIF-Paper 1.0 Author-Name: Guglielmo Forges Davanzati Author-Name-First: Guglielmo Author-Name-Last: Forges Davanzati Author-Name: Nicolò Giangrande Author-Name-First: Nicolò Author-Name-Last: Giangrande Title: The theoretical basis of the CGIL's analysis of the Italian economic decline Abstract: This paper deals with the Italian economic decline from a double perspective. First, it provides a reconstruction of the main Post Keynesian arguments explaining the bad macroeconomic performance of the Italian economy, starting from the end of the “economic miracle”. Second, it proposes a re-reading of the CGIL’s view, showing that is it consistent with a theoretical approach based on the fundamental assumptions and policy prescriptions of the Post Keynesian framework. Length: 15 Creation-Date: 2018-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1801.pdf File-Format: Application/pdf File-Function: First version, 2018 Number: PKWP1801 Classification-JEL: E60, J50 Keywords: Italian economic decline, labour market, unions Handle: RePEc:pke:wpaper:PKWP1801 Template-Type: ReDIF-Paper 1.0 Author-Name: Stefan Ederer Author-Name-First: Stefan Author-Name-Last: Ederer Author-Name: Miriam Rehm Author-Name-First: Miriam Author-Name-Last: Rehm Author-Email: miriam.rehm@uni-due.de Author-Workplace-Name: Federal Chamber of Labour Vienna (AT) Title: Will wealth become more concentrated in Europe? Evidence from a calibrated neo-Kaleckian model Abstract: We develop and calibrate an analytical growth model in the neo-Kaleckian tradition with an endogenous wealth distribution and differential returns to wealth between workers and capitalists. We show that a long-run equilibrium allows for non-zero wealth owned by workers, even as the model contains the “triumph of the rentier” predicted by Piketty’s r > g as a special case. The model’s calibration to ten European countries shows that the distribution of wealth is likely to become more unequal in all cases, barring political countermeasures. Length: 18 Creation-Date: 2017-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1717.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1717 Classification-JEL: D31, E12, E21 Keywords: inequality, wealth, income, neo-Kaleckian theory, model calibration Handle: RePEc:pke:wpaper:PKWP1717 Template-Type: ReDIF-Paper 1.0 Author-Name: Alexander Guschanski Author-Name-First: Alexander Author-Name-Last: Guschanski Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Are current accounts driven by competitiveness or asset prices? A synthetic model and an empirical test Abstract: This paper analyses the emergence of current account imbalances as a result of the co-existence of trade flows and financial flows. The literature has tended to view these factors in isolation: many post-Kaleckian models, as well as Net-saving approaches assume that financial flows will adjust to trade flows. Models focusing on financial crises feature a strong role for financial flows but ignore drivers of trade flows. Similarly, empirical analyses either ignore drivers of financial flows or insufficiently capture determinants of trade flows. The paper, first, proposes a simple macroeconomic framework of the current account which gives equal emphasis to trade flows, determined by price competitiveness, and financial flows, determined by asset prices. Second, we test a reduced form of the model for 28 OECD countries for the period 1971-2014. Our results indicate that cost competitiveness as well as asset prices play a role in the determination of current accounts, but asset prices have dominated in the last two decades. Length: 38 Creation-Date: 2017-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1716.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1716 Classification-JEL: E12, F32, F41 Keywords: current account, financial flows, competitiveness, asset prices Handle: RePEc:pke:wpaper:PKWP1716 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: King’s College London Author-Name: Quirin Dammerer Author-Name-First: Quirin Author-Name-Last: Dammerer Author-Name: Sukriti Kapur Author-Name-First: Sukriti Author-Name-Last: Kapur Title: The Research Excellence Framework 2014, journal ratings and the marginalization of heterodox economics Abstract: The Research Excellence Framework (REF) is the main research assessment for universities in the UK. It informs university league tables and the allocation of government research funding. This paper analyses the evaluations of the REF 2014 for Economics, Business, Politics and History. We analyse, first, from which journals, articles have been submitted; second, to what extent journal ratings and impact factors predict the REF´s evaluations; third, how many articles from heterodox economics journals have been submitted. We find that a small group of journals dominate the outputs submitted. Journal ratings and impact factors explain 86 to 89% of the variation in the output evaluations for Economics. These values are lower but still substantial for other disciplines. Few papers from heterodox economics journals were submitted to Economics. Overall, the REF in its present form marginalises heterodox economics, pushes it out of the discipline and endangers pluralism in economics research. Length: 35 Creation-Date: 2017-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1715_fCgwlkp.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1715 Classification-JEL: A14, A20, B50 Keywords: research assessment, Research Excellence Framework, journal impact factors, journal ratings, pluralism, heterodox economics Handle: RePEc:pke:wpaper:PKWP1715 Template-Type: ReDIF-Paper 1.0 Author-Name: Asjad Naqvi Author-Name-First: Asjad Author-Name-Last: Naqvi Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Directed technological change in a post-Keynesian ecological macromodel Abstract: This paper presents a post-Keynesian ecological macro model that combines three strands of literature: the directed technological change mechanism developed in mainstream endogenous growth theory models, the ecological economic literature which highlights the role of green innovation and material flows, and the post-Keynesian school which provides a framework to deal with the demand side of the economy, financial flows, and inter- and intra-sectoral behavioral interactions. The model is stock-flow consistent and introduces research and development (R&D) as a component of GDP funded by private firm investment and public expenditure. The economy uses three complimentary inputs – Labor, Capital, and (non-renewable) Resources. Input productivities depend on R&D expenditures, which are determined by relative changes in their respective prices. Two policy experiments are tested; a Resource tax increase, and an increase in the share of public R&D on Resources. Model results show that policy instruments that are continually increased over a long-time horizon have better chances of achieving a "green" transition than one-off climate policy shocks to the system, that primarily have a short-run effect. Length: 40 Creation-Date: 2017-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1714.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1714 Classification-JEL: E12, O33, Q57 Keywords: directed technological change, research and development, green transition, ecological economics, post-Keynesian economics, stock-flow consistency Handle: RePEc:pke:wpaper:PKWP1714 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Kemp-Benedict Author-Name-First: Eric Author-Name-Last: Kemp-Benedict Author-Email: E.J.Kemp-Benedict@leeds.ac.uk Author-Workplace-Name: Stockholm Environment Institute (SE) Author-Name: Antoine Godin Author-Name-First: Antoine Author-Name-Last: Godin Title: Introducing risk into a Tobin asset-allocation model Abstract: The Tobin asset-allocation model has become a standard component in stock-flow consistent (SFC) models. It relates asset returns to wealth allocation, and thereby to the value of assets as reflected in Tobin’s q. The model is flexible, parsimonious, and intuitively appealing, but it suffers from a large number of independent coefficients and depends only on returns for the allocation. A truism from financial theory and practice is that allocations depend on both risk and return. In this paper we introduce risk into a Tobin model. We propose that allocations are a compromise between competing goals of low turnover and high return, constrained by the degree of risk that investors are willing to tolerate. In our model, the Tobin coefficients depend on asset-specific risk and a small number of independent parameters. The model also yields an expression for the q values of different assets as a function of risk and parameters reflecting market sentiment. Length: 10 Creation-Date: 2017-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1713.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1713 Classification-JEL: D80, E12, G11 Keywords: Tobin formula, asset allocation, risk Handle: RePEc:pke:wpaper:PKWP1713 Template-Type: ReDIF-Paper 1.0 Author-Name: Yannis Dafermos Author-Name-First: Yannis Author-Name-Last: Dafermos Author-Name: Maria Nikolaidi Author-Name-First: Maria Author-Name-Last: Nikolaidi Author-Email: M.Nikolaidi@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Author-Name: Giorgos Galanis Author-Name-First: Giorgos Author-Name-Last: Galanis Title: Climate change, financial stability and monetary policy Abstract: Using a stock-flow-fund ecological macroeconomic model, we analyse (i) the effects of climate change on financial stability and (ii) the financial and global warming implications of a green quantitative easing (QE) programme. Emphasis is placed on the impact of climate change damages on the price of financial assets and the financial position of firms and banks. The model is estimated and calibrated using global data and simulations are conducted for the period 2016-2120. Four key results arise. First, by destroying the capital of firms and reducing their profitability, climate change is likely to gradually deteriorate the liquidity of firms, leading to a higher rate of default that could harm both the financial and the non-financial corporate sector. Second, climate change damages can lead to a portfolio reallocation that can cause a gradual decline in the price of corporate bonds. Third, climate-induced financial instability might adversely affect credit expansion, exacerbating the negative impact of climate change on economic activity. Fourth, the implementation of a green corporate QE programme can reduce climate-induced financial instability and restrict global warming. The effectiveness of this programme depends positively on the responsiveness of green investment to changes in bond yields. Length: 42 Creation-Date: 2017-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1712_7I9BPkg.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1712 Classification-JEL: E12, E44, E52, Q54 Keywords: ecological macroeconomics, stock-flow consistent modelling, climate change, financial stability, green quantitative easing Handle: RePEc:pke:wpaper:PKWP1712 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Goda Author-Name-First: Thomas Author-Name-Last: Goda Author-Email: tgoda@eafit.edu.co Author-Workplace-Name: Universidad EAFIT (CO) Author-Name: Santiago Sanchez Author-Name-First: Santiago Author-Name-Last: Sanchez Title: Market and disposable top income shares adjusted by national accounts data Abstract: This paper uses national accounts data to adjust market and disposable Top 10% and Top 1% household survey income shares for 39 developed and developing countries that are part of the Luxembourg Income Study (LIS). An additional novelty of this study is the distinction between labor and capital income. The obtained results suggest that for most countries top income shares are significantly higher than those reported in household surveys, which mainly underestimate top capital income. While the presented results should be treated with some caution, our easy-to-implement approach seems suitable for countries for which no tax data is available. Length: 20 Creation-Date: 2017-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1711.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1711 Classification-JEL: D31, E25 Keywords: top income shares, personal income inequality, income distribution, LIS household surveys, system of national accounts (SNA) Handle: RePEc:pke:wpaper:PKWP1711 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Rafael Wildauer Author-Name-First: Rafael Author-Name-Last: Wildauer Author-Email: r.wildauer@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Title: Expenditure cascades, low interest rates or property booms? Determinants of household debt in OECD Countries Abstract: The past decades have witnessed a strong increase in household debt and high growth of private consumption expenditures in many countries. This paper empirically investigates four explanations: First, the expenditure cascades hypothesis argues that an increase in inequality induced lower income groups to copy the spending behaviour of richer peer groups and thereby drove them into debt (‘keeping up with the Joneses’). Second, the housing boom hypothesis argues that increasing property prices encourage household spending and household borrowing due to wealth effects, eased credit constraints and the prospect of future capital gains. Third, the low interest hypothesis argues that low interest rates encouraged households to take on more debt. Fourth, the financial deregulation hypothesis argues that deregulation of the financial sector boosted credit supply. The paper tests these hypotheses by estimating the determinants of household borrowing using a panel of 11 OECD countries (1980-2011). Results indicate that real estate prices and low interest rates were the most important drivers of household debt. In contrast the data does not support the expenditure cascades hypothesis as a general explanation of debt accumulation across OECD countries. Our results are consistent with the financial deregulation hypothesis, but its explanatory power for the 1995-2007 period is low. Length: 33 Creation-Date: 2017-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1710.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1710 Classification-JEL: D31, E12, E51 Keywords: household debt, income distribution, property prices Handle: RePEc:pke:wpaper:PKWP1710 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Kemp-Benedict Author-Name-First: Eric Author-Name-Last: Kemp-Benedict Author-Email: E.J.Kemp-Benedict@leeds.ac.uk Author-Workplace-Name: Stockholm Environment Institute (SE) Title: Dematerialization, decoupling, and productivity Change Abstract: The prospects for long-term sustainability depend on whether, and how much, we can absolutely decouple economic output from total energy and material throughput. While relative decoupling has occurred – that is, resource use has grown less quickly than the economy – absolute decoupling has not, raising the question whether it is possible. This paper proposes a novel explanation for why decoupling has not happened historically, drawing on a recent theory of cost-share induced productivity change and an extension of post-Keynesian pricing theory to natural resources. Cost-share induced productivity change and pricing behavior set up two halves of a dynamic, which we explore from a post-Keynesian perspective. In this dynamic, resource costs as a share of GDP move towards a stable level, at which the growth rate of resource productivity is typically less than the growth rate of GDP. This provides a parsimonious explanation of the prevalence of relative over absolute decoupling. The paper then presents some illustrative applications of the theory. Length: 31 Creation-Date: 2017-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1709-updated.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1709 Classification-JEL: E12, O31, O33, Q32 Keywords: decoupling, dematerialization, cost-share induced technological change Handle: RePEc:pke:wpaper:PKWP1709 Template-Type: ReDIF-Paper 1.0 Author-Name: Ewa Karwowski Author-Name-First: Ewa Author-Name-Last: Karwowski Title: Corporate financialisation in South Africa: From investment strike to housing bubble Abstract: This article reveals the processes of financialisation in the South African economy by tracing the sources and destinations of NFCs' liquidity. The paper argues that rather than the volume of NFCs' financial investment, the composition of financial assets is crucial to assess corporate financialisation in the country. Non-financial businesses in South Africa fundamentally transformed their investment behaviour during the 1990s, shifting from more productive uses such as trade credit towards highly liquid and potentially innovative (and therefore risky) financial investment. Following the direction of financial flows the article shows that – fuelled by foreign capital inflows – companies' financial operations contributed to the price inflation in South African property markets. Length: 30 Creation-Date: 2017-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1708.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1708 Classification-JEL: B50, F30, F34, G01, G12, G15 Keywords: financialisation, emerging markets, financial instability, asset price volatility, heterodox economics Handle: RePEc:pke:wpaper:PKWP1708 Template-Type: ReDIF-Paper 1.0 Author-Name: Daniele Tori Author-Name-First: Daniele Author-Name-Last: Tori Author-Name: Özlem Onaran Author-Name-First: Özlem Author-Name-Last: Onaran Title: Financialisation and physical investment: a global race to the bottom in accumulation? Abstract: We estimate the effects of financialisation on physical investment in the developed and developing countries using panel data based on balance-sheets of publicly listed non-financial companies (NFCs) for the period 1995-2015. Among the developed economies, we focus on the cases of the USA, Japan, and a group of Western European countries. In the developing world, we present estimations based on the group of the NFCs in all developing countries as well as BRICS as a group- and country specific estimations for South Africa, South Korea, India, and China. We find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets. The negative impacts of financial incomes are non-linear with respect to the companies' size; financial income crowds out investment in large companies, and have a positive effect on the investment of only smaller, relatively more credit-constrained companies. Our findings support the ‘financialisation thesis’ that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term concerns for productivity in both developed and developing countries. Length: 30 Creation-Date: 2017-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1707.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1707 Classification-JEL: C23, D22, O16 Keywords: financialisation, investment, non-financial sector, firm data, developing countries Handle: RePEc:pke:wpaper:PKWP1707 Template-Type: ReDIF-Paper 1.0 Author-Name: Maria Nikolaidi Author-Name-First: Maria Author-Name-Last: Nikolaidi Author-Email: M.Nikolaidi@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Minsky models: A structured survey Abstract: Minsky’s ideas have recently gained prominence in the mainstream as well as in the heterodox literature. However, there exists no agreement upon the formal presentation of Minsky’s insights. The aim of this paper is to survey the literature and identify differences and similarities in the ways through which Minskyan ideas have been formalised. We distinguish between the models that focus on the dynamics of debt or interest, with no or a secondary role for asset prices, and the models in which asset prices play a key role in the dynamic behaviour of the economy. Within the first category of models we make a classification between (i) the Kalecki-Minsky models, (ii) the Kaldor-Minsky models, (iii) the Goodwin-Minsky models, (iv) the credit rationing Minsky models, (v) the endogenous target debt ratio models and (vi) the Minsky-Veblen models. Within the second category of models, we distinguish between (i) the equity price Minsky models and (ii) the real estate price Minsky models. Key limitations of the models and directions for future research are outlined. Length: 33 Creation-Date: 2017-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1706_hwOb8Vf.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1706 Classification-JEL: B50, E32, G01 Keywords: business cycles, financial instability, post-Keynesian economics, debt cycles Handle: RePEc:pke:wpaper:PKWP1706 Template-Type: ReDIF-Paper 1.0 Author-Name: Daniele Tori Author-Name-First: Daniele Author-Name-Last: Tori Author-Email: daniele.tori@open.ac.uk Author-Workplace-Name: Open University Author-Name: Özlem Onaran Author-Name-First: Özlem Author-Name-Last: Onaran Title: The effects of financialisation and financial development on investment: evidence from firm-level data in Europe Abstract: In this paper we estimate the effects of financialization on physical investment in selected western European countries using panel data based on the balance-sheets of publicly listed non-financial companies (NFCs) supplied by Worldscope for the period 1995-2015. We find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets by the NFCs. This finding is robust for both the pool of all Western European firms and single country estimations. The negative impacts of financial incomes are non-linear with respect to the companies' size: financial incomes crowd-out investment in large companies, and have a positive effect on the investment of only small, relatively more credit-constrained companies. Furthermore, we find that a higher degree of financial development is associated with a stronger negative effect of financial incomes on companies' investment. This finding challenges the common wisdom on 'finance-growth nexus'. Our findings support the 'financialization thesis' that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term stagnation in productivity. Length: 55 Creation-Date: 2017-06 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1705.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1705 Classification-JEL: C23, D22, G31 Keywords: financialization, financial development, firm-level data, Europe Handle: RePEc:pke:wpaper:PKWP1705 Template-Type: ReDIF-Paper 1.0 Author-Name: Joan R. Rovira Author-Name-First: Joan Author-Name-Last: Rovira Author-Email: jrrovirahoms@icloud.com Author-Workplace-Name: Economic Studies Office, Barcelona Chamber of Commerce (ES) Title: Secular stagnation and concentration of corporate power Abstract: We identify a set of key stylised facts characterising the evolution of the seven largest advanced economies from the 1960s to 2015 and develop a small one-sector model of growth and distribution broadly consistent with these facts. The model is used to explore the relationship between falling trend growth, the re-distribution of aggregate income towards profits and the concentration of corporate power and wealth. Theory is confronted with history to illustrate how changes in social structure can affect economic behaviour and performance. We argue that finance-led corporate restructuring, involving debt-financed corporate transactions, may have played a crucial role in shaping long-term patterns of growth and distribution. Length: 38 Creation-Date: 2017-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1704.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1704 Classification-JEL: B22, E11, E12, E44, E65, G01, O11 Keywords: Stagnation, Distribution, Growth, Financialisation, Heterodox Economics Handle: RePEc:pke:wpaper:PKWP1704 Template-Type: ReDIF-Paper 1.0 Author-Name: Özlem Onaran Author-Name-First: Özlem Author-Name-Last: Onaran Author-Email: o.onaran@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Author-Name: Maria Nikolaidi Author-Name-First: Maria Author-Name-Last: Nikolaidi Title: The effects of income distribution and fiscal policy on growth, investment and budget balance: the case of Europe Abstract: This paper develops a multi-country post-Kaleckian demand-led growth model that incorporates the role of the government. One novelty of this paper is to integrate cross-country effects of both changes in income distribution and fiscal policy. The model is used to estimate econometrically the effects of income distribution and fiscal policy on the components of aggregate demand in EU15 countries. The results show that a policy mix that combines the simultaneous implementation of a pro-labour wage policy, an expansionary fiscal policy and a progressive tax policy in all EU countries leads to a significant rise in the EU15 GDP. The impact of wage policies is positive but small; the overall stimulus becomes much stronger with fiscal expansion. This policy mix leads to an improvement in the budget balance in all the EU15 countries, suggesting that expansionary fiscal policy is sustainable when it is combined with wage and progressive tax policy. Length: 44 Creation-Date: 2017-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1703.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1703 Classification-JEL: E12, E25, E62 Keywords: None Handle: RePEc:pke:wpaper:PKWP1703 Template-Type: ReDIF-Paper 1.0 Author-Name: Eric Kemp-Benedict Author-Name-First: Eric Author-Name-Last: Kemp-Benedict Title: A multi-sector Kaleckian-Harrodian model for long-run analysis Abstract: This paper presents a step toward a post-Keynesian dynamic model for long-run policy analysis. It is a multi-sector Harrodian-Kaleckian growth model with locally unstable dynamics contained by a Hicksian floor and ceiling. It adopts a model of biased technological change that links productivity growth with the functional income distribution. The model features endogenous wages, prices, labor and capital productivities, capital utilization, employment, and labor participation. At present it lacks government, financial, and foreign sectors, but despite this it exhibits interesting behavior. The model generates asymmetric business cycles, with a long expansion and a short contraction, as well as long waves and changes in the structure of employment. Length: 21 Creation-Date: 2017-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1702.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1702 Classification-JEL: E11, E17, E22 Keywords: post-Keynesian, Harrodian-Kaleckian, multiplier-accelerator, technological change Handle: RePEc:pke:wpaper:PKWP1702 Template-Type: ReDIF-Paper 1.0 Author-Name: Esteban Ramon Perez Caldentey Author-Name-First: Esteban Author-Name-Last: Perez Caldentey Author-Email: esteban.perez@cepal.org Author-Workplace-Name: Economic Commission for Latin America and the Caribbean (CL) Title: Quantitative easing, changes in global liquidity and financial instability Abstract: This paper argues that Quantitative Easing (QE) led to significant changes in the global financial system, which, are not conducive to greater financial stability. Through a policy of reserve accumulation, QE disconnected base money from the money supply and deposits from loans. Jointly with the deleveraging process of global banks, QE contributed to restrain the supply of bank credit growth throughout the world. Also global banks continued to expand their trading on the basis of opaque instruments such as derivatives. Moreover, by altering the relative profitability of investing in different assets, QE exerted a positive effect on the performance of the international bond market. This not only spilled into emerging market economies expanding the debt of both the financial sector and the non-financial corporate sector but also has reinforced the role of the asset management industry in financial markets. Due to its concentration and interconnectedness, illiquidity, and pro-cyclicality the asset management industry poses important risks to financial stability. Length: 33 Creation-Date: 2017-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1701_Oo3Adk2.pdf File-Format: Application/pdf File-Function: First version, 2017 Number: PKWP1701 Classification-JEL: E12, E42, E44, E51 Keywords: Quantitative easing, financial system, global banks, asset management industry Handle: RePEc:pke:wpaper:PKWP1701 Template-Type: ReDIF-Paper 1.0 Author-Name: Ewa Karwowski Author-Name-First: Ewa Author-Name-Last: Karwowski Author-Email: ewa.karwowski@kcl.ac.uk Author-Workplace-Name: King’s College London Author-Name: Mimoza Shabani Author-Name-First: Mimoza Author-Name-Last: Shabani Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Financialisation: Dimensions and determinants. A cross-country study Abstract: The financialisation literature has grown over the past two decades. While there is a generally accepted definition, effectively financialisation has been used to describe very different phenomena. This paper proposes a multi-faceted notion of financialisation by distinguishing between financialisation of non-financial companies, households and the financial sector and using activity as well as vulnerability measures of financialisation. We identify seven financialisation hypotheses in the literature and empirically investigate them in a cross-country analysis for 17 OECD countries for the 1997-2007 period. We find that different financialisation measures are only weakly correlated, which suggests the existence of distinct financialisation processes. There is strong evidence across all sectors that financialisation is closely linked to asset price inflation and correlated with a debt-driven demand regime. Financial deregulation encourages financialisation, especially in the financial and household sector. By contrast, there is limited evidence that market-based financial systems tend to be more financialised, meaning financialisation can occur with large banks. Foreign financial inflows do not seem to be a main driver. We do not find indication that a secular investment slowdown precedes financialisation. Overall, our findings suggest that financialisation should be understood as variegated process, playing out differently across economic sectors in different countries. Length: 25 Creation-Date: 2016-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1619.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1619 Classification-JEL: B50, B51, G10, G20, G30, P51 Keywords: financialisation, cross country analysis, financial deregulation, property prices Handle: RePEc:pke:wpaper:PKWP1619 Template-Type: ReDIF-Paper 1.0 Author-Name: Guglielmo Forges Davanzati Author-Name-First: Guglielmo Author-Name-Last: Forges Davanzati Author-Email: guglielmo.forges@unisalento.it Author-Workplace-Name: University of Salento (IT) Title: Thorstein Veblen on the nature of the firm and income distribution Abstract: The aim of this paper is to provide a theoretical model inspired by Veblen’s theory of the firm, and to derive some implications of firms’ behaviour for the process of income distribution. It will be shown that the firm is a locus of conflict, involving technicians – interested in expanding production – and “businessmen” – interested in gaining money profits via the management of the “pecuniary side” of the firm. The outcome of the bargaining within the firm defines the ‘workmanship-type’ or ‘non-workmanship-type’ nature of the firm, and affects the level of real wages and employment, insofar as the greater the power of technicians, the higher the real wages are. Moreover, since the expansion of production is associated with the minimum degree of underutilization of capital, technical improvements have a positive effect on the level of employment. Finally, it is argued that a wage increase can have a positive effect on the degree of capital utilization and the level of employment, via the increase in total demand and in the degree of capital utilization. Length: 20 Creation-Date: 2016-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1618.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1618 Classification-JEL: B15, B31, D21, D30 Keywords: Veblen, theory of firm, wages, income distribution Handle: RePEc:pke:wpaper:PKWP1618 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: King’s College London Author-Name: Collin Constantine Author-Name-First: Collin Author-Name-Last: Constantine Author-Name: Severin Reissl Author-Name-First: Severin Author-Name-Last: Reissl Title: Explaining the Euro crisis: Current account imbalances, credit booms and economic policy in different economic paradigms Abstract: The paper proposes a post-Keynesian analysis of the Eurozone crisis and contrasts interpretations inspired by New Keynesian, New Classical, and Marxist theories. The origin of the crisis is the emergence of a debt-driven and an export-driven growth model, which resulted in a rapid increase in private debt ratios and current account imbalances. The reason the crisis escalated in southern Europe, but not in other parts of the world, lies in the unique dysfunctional economic policy regime of the Euro area. European fiscal rules and the Troika impose fiscal austerity on countries in crisis and the separation of fiscal and monetary spaces has made countries vulnerable to sovereign debt crises and forced them to comply. We analyse the role different paradigms attribute to current account imbalances, fiscal policy and monetary policy. Remarkably, opposing views on the relative importance of cost and demand developments in explaining current account imbalances can be found in both heterodox and orthodox economics. Regarding the assessment of fiscal and monetary policy there is a clearer polarisation, with heterodox analysis regarding austerity as unhelpful and large parts of orthodox economics endorsing it. We conclude that there is a weak mapping between post-Keynesian, New Classical, New Keynesian and Marxist theories and different economic policy strategies for the Euro area, which we label Keynesian New Deal, European Orthodoxy, Moderate Reform and Progressive Exit respectively. Length: 47 Creation-Date: 2016-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1617.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1617 Classification-JEL: B00, E00, E50, E63, F53, G01 Keywords: Euro crisis, European economic policy, sovereign debt crisis, current account balance, fiscal policy, quantitative easing Handle: RePEc:pke:wpaper:PKWP1617 Template-Type: ReDIF-Paper 1.0 Author-Name: Ewa Karwowski Author-Name-First: Ewa Author-Name-Last: Karwowski Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Financialisation in emerging economies: a systematic overview and comparison with Anglo-Saxon economies Abstract: Financialisation research has originally focussed on the US experience, but the concept is now increasingly applied to emerging economies (EMEs). There is a rich literature stressing peculiarities of individual country experiences, but little systematic comparison across EMEs. This paper fills this gap, providing an overview of the debate and identifying six financialisation interpretations for EMEs. These different interpretations stress (1) financial deregulation (2) foreign financial inflows, (3) asset price volatility, (4) the shift from bank-based to market-based finance, (5) business debt, and (6) household indebtedness. We construct and compare measures of the six financialisation interpretations across a sample of 17 EMEs from Latin America, emerging Europe, Africa and Asia, contrasting them with the US and UK, two financialised economies. We find considerable variation in financialisation experiences of EMEs. Asset price volatility is found across continents. Asia has been more exposed to capital inflows, stock markets have gained importance and private sector debt risen. In emerging Europe financial deregulation has been more pronounced with lower levels but strong increases in household debt. The picture is similar in South Africa, the African EME in the sample, where household debt is comparatively high. Financialisation in Latin America is weaker according to our measures. Length: 40 Creation-Date: 2016-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1616_haHHGZM.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1616 Classification-JEL: B50, E30, F34, G01, G12, G15 Keywords: financialisation, emerging markets, financial instability, asset price volatility, heterodox economics Handle: RePEc:pke:wpaper:PKWP1616 Template-Type: ReDIF-Paper 1.0 Author-Name: Mark Hayes Author-Name-First: Mark Author-Name-Last: Hayes Author-Email: mgh37@cam.ac.uk Author-Workplace-Name: University of Cambridge Title: Trades unions, real wages and full employment Abstract: A core proposition of Keynes’s General Theory is that money wages do not determine real wages or employment at the aggregate level in a closed economy. What then is the macroeconomic role of trades unions in the determination of real wages and employment? What are the mechanisms through which bargaining power takes effect? The paper argues that trades unions play important roles in countering employer monopsony as well as in determining the non-wage terms and conditions of employment and the incidence of risk between capital and labour. In the former role, it is the money wage that is relevant, while the latter role is a factor in the determination of aggregate real income and profit, yet the aggregate real wage itself and the wage share are residuals. Trades unions have the potential to support the promotion of full employment with price stability as part of a policy of demand management through the adoption of co-ordinated wage bargaining institutions. Length: 12 Creation-Date: 2016-08 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1615_b6I7c3w.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1615 Classification-JEL: E23, E25, J30, J51, J52 Keywords: Collective bargaining, wage co-ordination, income distribution Handle: RePEc:pke:wpaper:PKWP1615 Template-Type: ReDIF-Paper 1.0 Author-Name: Cédric Durand Author-Name-First: Cédric Author-Name-Last: Durand Author-Email: cdurand@ehess.fr Author-Workplace-Name: CEPN, Université Paris 13 (FR) Author-Name: Maxime Gueuder Author-Name-First: Maxime Author-Name-Last: Gueuder Title: The investment-profit nexus in an era of financialisation and globalisation. A profit-centred perspective Abstract: During the past decades, the link between profits and domestic investment has weakened in the biggest high-income economies. The present contribution explores this relaxation of the profits-investment nexus through a profit-centred perspective. Focusing on the impact of the origins and uses of profits, we study the investment behaviour of non-financial corporations in relation to their profits at the macro level since 1980, a period marked by financialisation and globalisation. We contrast three competing hypotheses – the Revenge of the Rentiers, the Financial Turn of Accumulation and Globalisation – and test them through a macro panel data analysis for France, Germany, Italy, Japan, the United Kingdom and the United States over the period 1980-2012. Length: 33 Creation-Date: 2016-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1614_LHEgFRy.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1614 Classification-JEL: E22, F62, G35 Keywords: profits, investment, financialisation, globalisation, macro panel analysis Handle: RePEc:pke:wpaper:PKWP1614 Template-Type: ReDIF-Paper 1.0 Title: A post-Keynesian theory for the yield on equity markets Abstract: This paper offers a novel post-Keynesian theory, in a stock-flow consistent framework, to understand equity returns and their links with economic growth and consumption decisions from a long-run perspective. The main features of such a theory can be summarised as follows. First, there is a negative relationship between Tobin’s q and economic growth. Second, the effect of economic growth on dividend yields and earnings growth is positive, but its effect on the growth in the number of shares is negative (i.e. a ‘dilution effect’), which makes the relationship between equity returns and economic growth undetermined a priori. Third, consumption decisions emerge as crucial drivers for shareholder profitability in the long-run, being such a result very close to Kalecki’s theory of profits, but now applied to financial markets. And fourth, in the post-Keynesian theory the equity yield is determined by aggregate demand, and no theory of risk is needed. Finally, the post-Keynesian theory will be compared against the mainstream financial theory, which features the famous risk-return nexus where asset returns are given by the volatility of the asset with respect to consumption. It will be claimed that the use of risk for determining equity returns at the macroeconomic level is problematic, and that depending on the risk definition assumed, the risk-return relationship can be either positive or negative – being thus such a nexus of little theoretical significance and posing serious problems for mainstream finance. Length: 26 Creation-Date: 2016-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1613_AYqodXn.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1613 Classification-JEL: E12, E22, E44, G10, O42 Keywords: equity yield, dividend yield, Tobin’s q, post-Keynesian macroeconomic theory, Kaleckian growth models, stock-flow consistent models, mainstream finance Handle: RePEc:pke:wpaper:PKWP1613 Template-Type: ReDIF-Paper 1.0 Author-Name: Yannis Dafermos Author-Name-First: Yannis Author-Name-Last: Dafermos Author-Email: Yannis.Dafermos@uwe.ac.uk Author-Workplace-Name: SOAS, University of London Author-Name: Maria Nikolaidi Author-Name-First: Maria Author-Name-Last: Nikolaidi Author-Name: Giorgos Galanis Author-Name-First: Giorgos Author-Name-Last: Galanis Title: A stock-flow-fund ecological macroeconomic model Abstract: This paper develops a stock-flow-fund ecological macroeconomic model that combines the stock-flow consistent approach of Godley and Lavoie with the flow-fund model of Georgescu-Roegen. The model has the following key features. First, monetary and physical stocks and flows are explicitly formalised taking into account the accounting principles and the laws of thermodynamics. Second, Georgescu-Roegen’s distinction between stock-flow and fund-service resources is adopted. Third, output is demand-determined but supply constraints might arise either due to environmental damages or due to the exhaustion of natural resources. Fourth, climate change influences directly the components of aggregate demand. Fifth, finance affects macroeconomic activity and the materialisation of investment plans that determine ecological efficiency. The model is calibrated using global data. Simulations are conducted to investigate the trajectories of key environmental, macroeconomic and financial variables under (i) different assumptions about the sensitivity of economic activity to the leverage ratio of firms and (ii) different types of green finance policies. Length: 49 Creation-Date: 2016-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1612_hKbwF80.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1612 Classification-JEL: E12, E44, Q54, Q57 Keywords: ecological macroeconomics, stock-flow consistent modelling, laws of thermodynamics, climate change, finance Handle: RePEc:pke:wpaper:PKWP1612 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Author-Email: A.Botta@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Author-Name: Eugenio Caversazi Author-Name-First: Eugenio Author-Name-Last: Caversazi Author-Name: Daniele Tori Author-Name-First: Daniele Author-Name-Last: Tori Title: The macroeconomics of shadow banking Abstract: In this paper, we propose a simple short-run post-Keynesian model in which the key aspects of shadow banking, namely securitization and the production of structured finance instruments, are explicitly formalized. At the best of our knowledge, this is the first attempt to broaden purely real-side post-Keynesian models and their traditional focus on shareholder-value orientation, the financialization of non-financial firms, and the profit-led vs wage-led dichotomy. We rather put emphasis on the role of financial institutions and rentier-friendly environment in determining the predominance of specific growth and distribution regimes. First, we illustrate the macroeconomic rationale of shadow banking practices. We show how, before the 2007-8 crisis, securitization and shadow banking allowed for an increase in profitability for the whole financial sector, while apparently keeping leverage under control. Second, we define a variety of shadow-banking-led regimes in terms of economic activity, productive capital accumulation, and income distribution. We show that both an ‘exhilarationist’ and a ‘stagnationist’ regime may prevail, nevertheless characterized by a probable increase in income inequality between rentiers and wage earners. Length: 31 Creation-Date: 2016-06 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1611_7CTLkIa.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1611 Classification-JEL: E02, E12, G23 Keywords: securitization, shadow banking, leverage, rentiers-led regimes, income distribution Handle: RePEc:pke:wpaper:PKWP1611 Template-Type: ReDIF-Paper 1.0 Author-Name: Marco Veronese Passarella Author-Name-First: Marco Author-Name-Last: Passarella Author-Email: m.passarella@leeds.ac.uk Author-Workplace-Name: University of Leeds Title: A Marx 'crises' model: The reproduction schemes revisited Abstract: This paper builds upon the Marxian reproduction schemes. It aims to test the impact of some of the most apparent 'stylised facts' which characterise the current phase of capitalism on an artificial two-sector growing economy. It is shown that, simplified though they are, the Marxian reproduction schemes allow framing a variety of radical and other ‘dissenting’ renditions of the recent economic and financial crises of early-industrialised countries with a flexible and sound analytical model. Length: 25 Creation-Date: 2016-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1610_MbJY9lo.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1610 Classification-JEL: B50, E11, E12 Keywords: Marx, Crisis, Reproduction Schemes, Post-Keynesian Economics Handle: RePEc:pke:wpaper:PKWP1610 Template-Type: ReDIF-Paper 1.0 Author-Name: Özlem Onaran Author-Name-First: Özlem Author-Name-Last: Onaran Author-Email: o.onaran@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Title: Secular stagnation and progressive economic policy alternatives Abstract: This paper summarizes two main findings in the Post-Keynesian literature regarding the linkages between financialization, income distribution, accumulation and productivity. Firstly, at the core of secular stagnation lies the missing link between profits and investment. Secondly, rising inequality and financialization have been the main reasons for this missing link and hence the major brakes against capital accumulation and growth. The paper concludes with alternative progressive policies based on a coordinated policy mix of equality-led development and public investment. Length: 18 Creation-Date: 2016-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1609.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1609 Classification-JEL: E12, E22, E25 Keywords: wage share, inequality, wage-led growth, financialization, secular stagnation, public investment Handle: RePEc:pke:wpaper:PKWP1609 Template-Type: ReDIF-Paper 1.0 Author-Name: Rafael Wildauer Author-Name-First: Rafael Author-Name-Last: Wildauer Author-Email: r.wildauer@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Title: Determinants of US household debt: New evidence from the SCF Abstract: This paper investigates the factors driving US household borrowing up to 2007. Two popular explanations are tested: First, the expenditure cascades hypothesis based on the assumption of debt-financed expenditures driven by an increasingly polarised distribution of income (‘keeping up with the Joneses’) and second, the hypothesis of Minskyian households which identifies climbing real estate prices as the decisive factor in household debt accumulation (re-mortgaging in order to cash in on capital gains and rising loan-to-value ratios in property purchases). This paper develops a method for obtaining individual household borrowing figures despite the lack of a panel structure from the Survey of Consumer Finances (SCF); it is the first to use the high quality information the SCF provides to investigate the impact of shifts in the income distribution and asset prices on household borrowing. The findings indicate that it is the interaction between the concentration of income at the top of the distribution and rising real estate prices which explains a large fraction of the increase in household borrowing prior to 2008. Therefore, neither the expenditure cascades hypothesis nor the hypothesis of Minskyian households are, in isolation, sufficient in order to understand household debt accumulation and thus the paper calls for a synthesis: future research should analyse the role of the distribution of income and asset prices together rather than separately. Length: 58 Creation-Date: 2016-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1608.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1608 Classification-JEL: D12, D31, E03, E12 Keywords: household debt, expenditure cascades, wealth effects, Minsky Handle: RePEc:pke:wpaper:PKWP1608 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: King’s College London Author-Name: Walid Qazizada Author-Name-First: Walid Author-Name-Last: Qazizada Author-Name: Sebastian Gechert Author-Name-First: Sebastian Author-Name-Last: Gechert Title: Demand effects of fiscal policy since 2008 Abstract: The Great Recession 2007-09 has led to controversies around the role of fiscal policy. Academically this has translated into renewed interest in the effects of fiscal policy. Several studies have since suggested that fiscal multipliers are substantially larger in downswings or depressions than in the upswing. In terms of economic policy reactions countries have differed substantially in the fiscal stance. It is an important open question how big the impact of these policies on economic growth has been. The paper uses the regime-dependent multiplier estimates by Qazizada and Stockhammer (2015) and by Gechert and Rannenberg (2014) to calculate the demand effects of fiscal policy for Germany, USA, UK, Greece, Ireland, Italy, Portugal and Spain since 2008. This allows assessing to what extent fiscal policy explains different economic performances across countries. We find expansionary fiscal policy in 2008/09 in all countries, but since 2010 fiscal policies have differed. While the fiscal impact was roughly neutral in Germany, the UK, and the USA, it was large and negative in Greece, Ireland, Italy, Portugal, and Spain. Length: 26 Creation-Date: 2016-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1607.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1607 Classification-JEL: C36, E62 Keywords: multiplier, fiscal policy, austerity, recession Handle: RePEc:pke:wpaper:PKWP1607 Template-Type: ReDIF-Paper 1.0 Author-Name: Guglielmo Forges Davanzati Author-Name-First: Guglielmo Author-Name-Last: Forges Davanzati Author-Email: guglielmo.forges@unisalento.it Author-Workplace-Name: University of Salento (IT) Author-Name: Rosario Patalano Author-Name-First: Rosario Author-Name-Last: Patalano Author-Name: Guido Traficante Author-Name-First: Guido Author-Name-Last: Traficante Title: The Italian economic decline in a Kaldorian theoretical perspective Abstract: This paper analyses the Italian economic decline in a Kaldorian theoretical framework. On the theoretical ground we propose an interpretation of the Italian economic decline based on the continuous decline of domestic demand and the constant reduction of the rate of growth of labour productivity. This interpretation is consistent with the concept of decline, which involves a long-run perspective. We also consider the role of the banking sector as a factor driving aggregate demand and, in turn, labour productivity. We estimate a VAR for the period 2002-2015 to analyse jointly the evolution of public consumption, real GDP, private investments, credit supply, labour compensation and productivity. Our main empirical finding is that aggregate demand and credit supply significantly affect the path of labour productivity, consistently with Kaldor's second law. Length: 16 Creation-Date: 2016-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1606_gB58IUN.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1606 Classification-JEL: B52, E12, E60 Keywords: Kaldor, Italy, aggregate demand, labour productivity Handle: RePEc:pke:wpaper:PKWP1606 Template-Type: ReDIF-Paper 1.0 Author-Name: Jo Michell Author-Name-First: Jo Author-Name-Last: Michell Author-Email: jo.michell@uwe.ac.uk Author-Workplace-Name: UWE Bristol Title: Do shadow banks create money? 'Financialisation' and the monetary circuit Abstract: The rise of the shadow banking system is viewed throught the lens of Graziani's Monetary Theory of Production. Graziani's categories of 'initial finance' and 'final finance' are used to analyse the new forms of credit created in the shadow banking sector. It is argued that the accumulation of leverage in the shadow banking system and the creation of credit money by the traditional banking sector are symbiotic processes. While Graziani's triangular debtor-bank-creditor relationship remains central, the circuit operates in a perverse form in which household debt is stored on the balance sheets of shadow banks, allowing the banking system to break the historical connection between money creation and productive activity. Length: 38 Creation-Date: 2016-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1605.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1605 Classification-JEL: E12, E40, G21 Keywords: monetary circuit, endogenous money, shadow banking, financialization, Graziani Handle: RePEc:pke:wpaper:PKWP1605 Template-Type: ReDIF-Paper 1.0 Author-Name: Won Jun Nah Author-Name-First: Won Jun Author-Name-Last: Nah Author-Name: Marc Lavoie Author-Name-First: Marc Author-Name-Last: Lavoie Author-Email: mlavoie@uottawa.ca Author-Workplace-Name: University of Ottawa (CA) Title: Long run convergence in a neo-Kaleckian open-economy model with autonomous export growth Abstract: A simple neo-Kaleckian open-economy model is presented and its implications for growth regimes are analyzed. The present model features long run-convergence to its normal rate of capacity utilization, which is conditionally achieved by incorporating the Harrodian principle of instability and autonomous growth in foreign demand. It is demonstrated that some aspects of the main Kaleckian results can be preserved not only in the short run but also in the long run, in the sense that both (i) a decrease in the propensity to save, and (ii) a change in income distribution favoring labor, bring about higher average rates of production growth and capital accumulation. However, the long-run impact of a change in the profit share is shown to be subjected to the condition that the responsiveness of the real exchange rate with respect to the profit share has to be bounded from above, confirming that the scope for wage-led demand or wage-led growth can be limited by open-economy considerations. Length: 30 Creation-Date: 2016-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1604_Y57A0kM.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1604 Classification-JEL: E11, F41, O41 Keywords: neo-Kaleckian, growth, capacity utilization, exports, profit share, real exchange rate Handle: RePEc:pke:wpaper:PKWP1604 Template-Type: ReDIF-Paper 1.0 Author-Name: Özlem Onaran Author-Name-First: Özlem Author-Name-Last: Onaran Author-Email: o.onaran@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Title: Wage- versus profit-led growth in the context of international interactions and public spending: The political aspects of wage-led recovery Abstract: This paper presents the empirical evidence about the impact of the simultaneous race to the bottom in labour’s share on growth after taking global interactions into account based on the Post-Kaleckian theoretical framework developed by Bhaduri and Marglin (1990). The world economy and large economic areas are likely to be wage-led; and parameter shifts in different periods are unlikely to make a difference in this finding. The effects that can come from a wage-led recovery on growth and hence employment are positive, however they are also modest in magnitude. We then present an alternative scenario based on a policy mix of wage increases and public investment. A coordinated mix of policies in the G20 targeted to increase the share of wages in GDP by 1%-5% in the next 5 years and to raise public investment in social and physical infrastructure by 1% of GDP in each country can create up to 5.84% more growth in G20 countries. The final section addresses the political aspects and barriers to a wage-led recovery. Length: 21 Creation-Date: 2016-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1603.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1603 Classification-JEL: E12, E22, E25 Keywords: wage share, wage-led growth, globalization, public investment Handle: RePEc:pke:wpaper:PKWP1603 Template-Type: ReDIF-Paper 1.0 Author-Name: Özlem Onaran Author-Name-First: Özlem Author-Name-Last: Onaran Author-Email: o.onaran@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Title: Wage-led growth in the EU15 member states: The effects of income distribution on growth, investment, trade balance, and inflation Abstract: This paper estimates a multi-country demand-led growth model for EU15 countries. A decrease in the share of wages in national income in isolation leads to lower growth in Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom, whereas it stimulates growth in Austria, Belgium, Denmark and Ireland. However, a simultaneous decline in the wage share leads to an overall decline in EU15 GDP; hence EU15 as a whole is a wage-led economy. Furthermore, Austria and Ireland also experience negative effects on growth when they decrease their wage share along with their trading partners. The results indicate that a decline in the wage share has had significant negative effects on growth in the EU15 countries and supports the case of wage coordination. We present different wage-led recovery scenarios taking into account further effects of a change in the wage share on prices, nominal unit labour costs, investment, and net exports. Length: 41 Creation-Date: 2016-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1602.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1602 Classification-JEL: E12, E22, E25 Keywords: Wage share, Growth, European Multiplier, Demand Regime Handle: RePEc:pke:wpaper:PKWP1602 Template-Type: ReDIF-Paper 1.0 Author-Name: Daniele Tori Author-Name-First: Daniele Author-Name-Last: Tori Author-Email: d.tori@gre.ac.uk Author-Workplace-Name: Open University Author-Name: Özlem Onaran Author-Name-First: Özlem Author-Name-Last: Onaran Title: The effects of financialization on investment: Evidence from firm-level data for the UK Abstract: This paper estimates the effects of financialization on physical investment in the UK using panel data based on balance-sheets of publicly listed non-financial companies supplied by Worldscope for the period 1985-2013. We find robust evidence of an adverse effect of not only financial payments (interests and dividends) but also financial incomes on the rate of accumulation. The negative impacts of financial incomes from interests and dividends are particularly strong for the pre-crisis period. Our findings support the ‘financialization thesis’ that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term concerns for productivity. Length: 33 Creation-Date: 2016-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1601.pdf File-Format: Application/pdf File-Function: First version, 2016 Number: PKWP1601 Classification-JEL: C23, D22, G30 Keywords: Financialization, Investment, Non-financial sector, Firm data, United Kingdom Handle: RePEc:pke:wpaper:PKWP1601 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: King’s College London Title: Wage-led versus profit-led demand: What have we learned? A Kalecki-Minsky view Abstract: The Bhaduri-Marglin model has become a widely used workhorse model in heterodox macroeconomics and it has given rise to a dozen or so empirical studies, which at times have given conflicting results. Neo-Kaleckians and neo-Goodwinians have applied different estimation strategies, with the former typically estimating behavioural equations, while the latter have often used reduced-form demand equations. Further differences include the lag structure, the output measure, the control variables and the sample. The paper, firstly, tries to clarify the terms of the debate. While neo-Kaleckians interpret the model as medium-term, partial-equilibrium goods market model, neo-Goodwinians are interested in the interaction of demand and distribution and regard the model as a long-run model with short-run cycles. Second, we elaborate a Kalecki-Minsky view of the economy as characterised by a wage-led demand regime and cycles driven by financial fragility. Many of the reported results may suffer from omitted variable bias as they do not include financial control variables. At least in the recent past, financial effects on demand have been much larger in size than distribution effects. A wage-led Minsky model with reserve army distribution function gives rise to pseudo-Goodwin cycles. Length: 26 Creation-Date: 2015-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1512.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1512 Classification-JEL: B50, E11, E12, E20 Keywords: wage-led growth, Bhaduri-Marglin model, Post Keynesian Economics, Minsky cycles Handle: RePEc:pke:wpaper:PKWP1512 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Author-Email: A.Botta@greenwich.ac.uk Author-Workplace-Name: University of Greenwich Author-Name: Daniele Tori Author-Name-First: Daniele Author-Name-Last: Tori Title: A critique to the expansionary austerity: Theoretical weaknesses and empirical counter evidence Abstract: The existing criticism to the expansionary austerity theory (EAT) has extensively addressed the methodological problems affecting the econometric techniques underpinning it. Relatively fewer efforts have been spent in showing its theoretical weaknesses, i.e. the rather extreme assumptions and circumstances under which an expansionary fiscal correction episode might effectively materialize. In this paper, we develop a more comprehensive critique, which moves both from the theoretical and empirical terrains. We first present a general short-run model, which shows how, even admitting for some crucial EAT-like assumptions and mechanisms, expansionary outcomes of fiscal corrections are very far from guaranteed. We then integrate the above theoretical investigation with an econometric model testing for the effectiveness of the mechanisms at the basis of the EAT. We consider a sample of developed economies composed by both monetarily sovereign and non-monetarily sovereign countries. Our time spell runs from 2007 to 2016 since that we are interested to assess the solidity of the EAT postulates in the post-crisis period. Our findings reinforce the validity of our critique. Since 2007, the core mechanisms of the expansionary austerity theory were not at work, to say the least. Austerity measures did not provide any expansionary impulse to economic activity since that the “expectation”, “financial” and “external” channels were inactive at best, or they acted in the opposite direction with respect to what EAT advocates would have suggested. Further, austerity per se did not restore any sense of credibility about public finance solidity on financial markets. Rather, it exacerbated financial turbulences and speculation on the market for sovereign bonds. Interestingly, austerity measures delivered perverse results precisely in those non-monetarily sovereign countries where they were thought to be mostly effective. Length: 27 Creation-Date: 2015-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1511-updated.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1511 Classification-JEL: E12, E61, E62 Keywords: Fiscal policy, expansionary austerity theory, post-Keynesian macro models, panel data Handle: RePEc:pke:wpaper:PKWP1511 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Email: engelbert.stockhammer@kcl.ac.uk Author-Workplace-Name: King’s College London Title: Neoliberal growth models, monetary union and the Euro crisis. A post-Keynesian perspective Abstract: The paper offers an account of the Euro crisis based on post-Keynesian monetary theory and its typology of demand regimes. Neoliberalism has transformed social and financial relations in Europe but it has not given rise to a sustained profit-led growth process. Instead, growth has relied either on financial bubbles and rising household debt ('debt-driven growth') or on net exports ('export-driven growth'). In Europe the financial crisis has been amplified by an economic policy architecture (the Stability and Growth Pact) that aimed at restricting the role of fiscal policy and monetary policy. This neoliberal economic policy regime in conjunction with the separation of monetary and fiscal spheres has turned the financial crisis of 2007 into a sovereign debt crisis in southern Europe. Length: 34 Creation-Date: 2015-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1510.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1510 Classification-JEL: E02, E12, E50, E60, F50, P16 Keywords: Euro crisis, neoliberalism, European economic policy, European integration, financial crisis, sovereign debt crisis Handle: RePEc:pke:wpaper:PKWP1510 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Felix Lopez Martinez Author-Name-First: Felix Lopez Author-Name-Last: Martinez Title: A post-Keynesian theory for Tobin's q in a stock-flow consistent framework Abstract: The paper proposes a post-Keynesian framework to explain Tobin’s q behaviour in the long run. The theoretical basis is informed by the Cambridge corporate model originally proposed by Kaldor (1966), which is reinterpreted here as a theory for q. The core of the ‘Kaldorian q theory’ is a negative long-run relation between q and growth rates, a negative relation between q and propensities to consume, and the fact that q can be different from 1 in the long-run equilibrium. We generalise this model through a medium-scale Stock-Flow Consistent (SFC) model, which introduces important post-Keynesian aspects missing in the Kaldorian model, such as endogenous money, a financial system and inflation. We extend the model to include a more realistic treatment of firms’ financial structure decisions and allow the interdependence between these decisions and dividend policy. Numerical simulations confirm that the original Kaldorian relations between q and growth rates and propensities to consume hold, but unlike the original model, in our model q is not independent of how firms finance their investment. We also confirm the possibility of q being different from 1 in the long-run. Finally, we contrast this ‘post-Keynesian q theory’ with the Miller-Modigliani dividend irrelevance proposition and the neoclassical investment and financial theory. It is shown that its validity depends crucially on the value taken by q: for q values different from 1 the proposition will not hold and dividend policy will be relevant for equity valuation. Therefore, post-Keynesian q theory stands against the main predictions of mainstream finance and constitutes an alternative for developing a macroeconomic theory for equity markets. Length: 30 Creation-Date: 2015-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1509_cSPYRSG.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1509 Classification-JEL: E12, E22, E44, G10, O42 Keywords: Tobin’s q, post-Keynesian macroeconomic theory, stock-flow consistent models, Cambridge corporate models, Miller-Modigliani dividend irrelevance proposition Handle: RePEc:pke:wpaper:PKWP1509 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Cédric Durand Author-Name-First: Cédric Author-Name-Last: Durand Author-Name: Ludwig List Author-Name-First: Ludwig Author-Name-Last: List Title: European growth models and working class restructuring before the crisis Abstract: This paper builds on post-Keynesian macroeconomics, the Regulation Approach and a Neo-Gramscian International Political Economy approach to class analysis and offers an empirical analysis of European growth models and working class restructuring in Europe between 2000 and 2008. We will distinguish between the ‘East’, the ‘North’, and the ‘South’ and structure our analysis around industrial upgrading, financialisation and working class coherence. We find an export-driven growth model in the North, which came with wage suppression and outsourcing to the East. In the East the growth model can be characterised as dependent upgrading, which allowed for high real wage growth despite declining working class coherence. The South experienced a debt-driven growth model with a real estate bubble and high inflation rates resulting in large current account deficits. Our analysis shows that class restructuring forms an integral part in the economic process that resulted in European imbalances and the Euro crisis. Length: 30 Creation-Date: 2015-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1508.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1508 Classification-JEL: B50, P52, Z10 Keywords: European growth models, class analysis, labour relations, debt-driven growth, financialisation Handle: RePEc:pke:wpaper:PKWP1508 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Title: The complex inequality-innovation-public investment nexus: What we (don't) know, what we should, and what we have to do Abstract: In this paper, we deal with the complex relationship connecting inequality to innovation, and the ways through which public investment, in particular public participation to R&D initiatives, can affect it. We first stress that various different equilibria may exist in the inequality-innovation space. The positive relation that part of the economic theory often assumes to exist between (initially) rising inequality and improving innovation performances emerges as only one among many other far less virtuous dynamic trajectories. We then analyze the specific case of the US. We put emphasis on the possible perverse effects that the financialization of the US economy may have on the inequality-innovation nexus. We also note that the US developmental State – very often neglected by the economic literature – can effectively mitigate such undesirable outcomes. According to our interpretation of recent developments in the US economy, the widespread belief in the positive pro-innovation effects of fierce cutthroat remuneration systems may prove to be ungrounded. Length: 30 Creation-Date: 2015-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1506_yvWexHV.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1506 Classification-JEL: O15, O16, O31, O38 Keywords: Inequality, innovation, financialization, public investment, developmental state Handle: RePEc:pke:wpaper:PKWP1506 Template-Type: ReDIF-Paper 1.0 Author-Name: Guglielmo Forges Davanzati Author-Name-First: Guglielmo Author-Name-Last: Forges Davanzati Author-Email: guglielmo.forges@unisalento.it Author-Workplace-Name: University of Salento (IT) Title: Nicholas Kaldor on endogenous money and increasing returns Abstract: Nicholas Kaldor’s contribution to economic theory covers a wide range of topics, elaborated in different historical contexts, such as theories of economic growth and the balance of payments, studies on interregional divergences and monetary theory. In most cases, historians of economic thought have devoted their attention to single aspects of his contributions. This paper aims at integrating Kaldor’s monetary theory and his view of the relevance of increasing returns. His theory of endogenous money is very similar to the view proposed in the contemporary monetary theory of production, and, in this respect, Kaldor’s contribution can certainly be considered an “antecedent” of this line of thought. Length: 30 Creation-Date: 2015-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1505.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1505 Classification-JEL: B30, E40, O40 Keywords: Endogenous money, aggregate demand, labour productivity Handle: RePEc:pke:wpaper:PKWP1505 Template-Type: ReDIF-Paper 1.0 Author-Name: Zdravka Todorova Author-Name-First: Zdravka Author-Name-Last: Todorova Author-Name: Tae-Hee Jo Author-Name-First: Tae-Hee Author-Name-Last: Jo Title: Frederic S. Lee's contributions to heterodox economics Abstract: The community of heterodox economists has lost Fred Lee, one of its fervent leaders, who has been at the center of the heterodox movement for the past three decades. The paper delineates Fred Lee’s wide-ranging contributions to heterodox economics focusing on the making of the history and identity of heterodox economics, on heterodox microeconomic theory, and on the analysis of the social provisioning process. What do these contributions mean for heterodox economics? Fred Lee has left us heterodox theories, institutions, and goodwill that will continue developing in the work of economists who are concerned with establishing an alternative critical theory to the status quo. Length: 30 Creation-Date: 2015-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1504.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1504 Classification-JEL: B30, B50, D20, D40, P10 Keywords: Frederic S. Lee, heterodox economics, heterodox theory, heterodox microfoundations, heterodox microeconomics, surplus approach Handle: RePEc:pke:wpaper:PKWP1504 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Rafael Wildauer Author-Name-First: Rafael Author-Name-Last: Wildauer Title: Debt-driven growth? Wealth, distribution and demand in OECD countries Abstract: The paper investigates the effects of changes in the distribution of income and in wealth on aggregate demand and its components. We extend the Bhaduri and Marglin (1990) model to include personal income inequality as well as asset prices and debt. This allows for an evaluation of the wage or profit-led nature of demand regimes, of the expenditure cascade argument (Frank et al. 2010) and several hypotheses regarding the effects of wealth and debt. Our estimates are based on a panel of 18 OECD countries covering the period 1980-2013. For the full panel the average demand regime is found to be wage led. We fail to find effects of personal inequality, but do find strong effects of debt and property prices which have been the major drivers of aggregate demand in the decade prior to the 2007 crisis. Length: 30 Creation-Date: 2015-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1503.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1503 Classification-JEL: E11, E12, E21 Keywords: Post-Keynesian economics, wage-led growth, Bhaduri-Marglin model, demand regimes, wealth effect, Veblen effect, expenditure cascade, aggregate demand Handle: RePEc:pke:wpaper:PKWP1503 Template-Type: ReDIF-Paper 1.0 Author-Name: Mark Hayes Author-Name-First: Mark Author-Name-Last: Hayes Title: Keynes, the Pope and the IMF Abstract: This paper discusses Keynes’s surprisingly positive views on the medieval scholastic teaching on usury and draws upon his work to argue that the traditional view of usury (understood as the charging of rent for the use of money) as anti-social is well-founded. Keynes’s understanding of the nature of probability allows a clear distinction to be made between debt and equity finance which most economists dismiss. Rather than meriting remuneration, the demand for the security provided by money against an uncertain future imposes a social cost in one form or another. This proposition is illustrated with reference to the problems of the modern international financial and monetary system, specifically the role of deposit insurance and the obstacles to a renewed system of managed exchange rates, without which many regions appear doomed to enduring long-term austerity. Length: 30 Creation-Date: 2015-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1502.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1502 Classification-JEL: E42, E52, G28 Keywords: Interest, monetary system, commodity standard, deposit insurance Handle: RePEc:pke:wpaper:PKWP1502 Template-Type: ReDIF-Paper 1.0 Author-Name: Zdravka Todorova Author-Name-First: Zdravka Author-Name-Last: Todorova Title: A Veblenian articulation of the monetary theory of production Abstract: The article presents a further articulation of the monetary theory of production inspired by the writings of Thorstein Veblen. Particularly I offer a formulation of the monetary theory of production as part of broader theorizing about social provisioning and the life process. This includes an analytical focus on non-commodities; an extension of the Veblenian dichotomy to non-market activities; discussion of Veblen’s theory of social valuation in connection to monetary theory of production and class; delineation of as social processes that constitute social provisioning and their commodity and non-commodity aspects. The goal is bridging the gap between monetary theory of production and analysis of “the social”. Length: 30 Creation-Date: 2015-03 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1501.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: PKWP1501 Classification-JEL: B15, B41, B52, B54, P16, Z13 Keywords: Monetary theory of production, Thorstein Veblen, capitalism, heterodox economics, social provisioning, class, political economy Handle: RePEc:pke:wpaper:PKWP1501 Template-Type: ReDIF-Paper 1.0 Author-Name: Jo Michell Author-Name-First: Jo Author-Name-Last: Michell Title: A Steindlian account of the distribution of corporate profits and leverage: A stock-flow consistent macroeconomic model with agent-based microfoundations Abstract: Post Keynesian economics has largely forgotten Steindl's insight that monopolisation of the corporate sector redistributes profits to those firms least likely to invest them productively. Agent-based methods can be used to incorporate Steindl's insights into a simple stock- flow consistent model of the monetary circuit. This model illustrates the `maldistribution of profits' and `enforced indebtedness' of heterogeneous firms alongside the tendency towards stagnation that occurs with rising monopolisation. The model also demonstrates Minsky's assertion that firms' leverage rises over the business cycle can be reconciled with Kalecki's macroeconomic identities showing that profits are `financed' by the investment expenditures of firms. Length: 30 Creation-Date: 2014-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1412.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1412 Classification-JEL: C63, E16, E22, E25, E42 Keywords: Stock-flow consistent, heterogeneous agents, post-Keynesian Handle: RePEc:pke:wpaper:PKWP1412 Template-Type: ReDIF-Paper 1.0 Author-Name: Felix Lopez Martinez Author-Name-First: Felix Lopez Author-Name-Last: Martinez Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: A Post-Keynesian response to Piketty's 'fundamental contradiction of capitalism' Abstract: In Capital in the Twenty-First Century, the French economist Thomas Piketty develops a new and rich set of data that deals with income and wealth distribution, output-wealth dynamics and rates of return, and has proposed as well some “laws of capitalism”. At the core of his theoretical argument lies the “fundamental inequality of capitalism”, an empirical regularity that states that the rate of return on wealth is higher than the growth rate of the economy. This simple construct allows him to conclude that increasing wealth (and income) inequality is an inevitable outcome of capitalism. While we share some of his conclusions, we will highlight some shortcomings of his approach based on a Cambridge post-Keynesian growth-and-distribution model. We argue, first, that r > g (i.e. that the rate of return on wealth is greater than the growth rate of the economy) is not necessarily associated with increasing inequality in functional distribution; second, Piketty commits a fallacy-of-composition argument when he says that the necessary condition for r > g is that capitalists have to save a large share of their capital income; third, post-Keynesian economists can learn from Piketty’s insights about personal income distribution and incorporate them into their models; and, fourth, we reiterate the post-Keynesian argument that a well-behaved aggregate production function does not exist and it therefore cannot explain the distribution of income. Length: 30 Creation-Date: 2014-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1411_93JOuHP.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1411 Classification-JEL: B22, B50, E12, O40 Keywords: Rate of return, income distribution, post-Keynesian growth and distribution models, Cambridge equation, Pasinetti's theorem Handle: RePEc:pke:wpaper:PKWP1411 Template-Type: ReDIF-Paper 1.0 Author-Name: Alberto Botta Author-Name-First: Alberto Author-Name-Last: Botta Title: The macroeconomics of a financial Dutch disease Abstract: In this paper we describe the medium-run macroeconomic effects and long-run development consequences of a financial Dutch disease that may take place in a small developing country with abundant natural resources. The first move of such a peculiar Dutch disease is on financial markets. An initial surge in FDI targeting domestic natural resources sets in motion a perverse cycle between exchange rate appreciation and mounting short-term capital flows. Such a spiral easily gives rise to exchange rate volatility, foreign capital reversals, and sharp macroeconomic instability. In the long run, such acute macroeconomic instability as well as overdependence on natural resource exports all dampen the development of non-traditional tradable good sectors and curtail labor productivity dynamics. We advise the introduction of constraints to short-term capital flows, in the form of taxes on exchange rate-based capital gains, to tame exchange rate/capital flows boom-and-bust cycles. We also provide support to a developmentalist monetary policy that targets competitive nominal and real exchange rates in order to favor the process of production and export diversification. Such a policy stand can be particularly effective to counter-act the long-run negative effects of the financial Dutch disease we describe. Length: 30 Creation-Date: 2014-10 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1410.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1410 Classification-JEL: F32, O14, O24 Keywords: Financial Dutch Disease, exchange rate volatility, macroeconomic instability, developmentalist monetary policy Handle: RePEc:pke:wpaper:PKWP1410 Template-Type: ReDIF-Paper 1.0 Author-Name: Sheila C. Dow Author-Name-First: Sheila Author-Name-Last: Dow Author-Email: s.c.dow@stir.ac.uk Author-Workplace-Name: University of Stirling Title: The role of belief in the debate over austerity policies Abstract: The purpose of this paper is to argue that awareness of the epistemological issues arising from an open-system ontology is critical to understanding the crisis and the policy response, to challenging that understanding and to encouraging a radical policy shift. The argument is couched in terms of belief as an epistemological concept. In particular the paper addresses the misleading impression, persuasively conveyed by mainstream economists, that their argument for austerity is ‘scientific’ and independent of ideology, power and ethics. The resulting widespread belief in austerity policies as scientifically justified has prevented arguments against austerity gaining more traction. The critique of austerity policies would therefore be strengthened by a critique of this rhetorical (mis)representation of economic theorising. Length: 30 Creation-Date: 2014-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1409.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1409 Classification-JEL: B40, E10, E62 Keywords: Fiscal austerity, science, belief Handle: RePEc:pke:wpaper:PKWP1409 Template-Type: ReDIF-Paper 1.0 Author-Name: Molly Scott Cato Author-Name-First: Molly Scott Author-Name-Last: Cato Title: From resilient regions to bioregions: An exploration of green post-Keynesianism Abstract: This paper develops an answer to the question of what constitutes a resilient region (Bristow, 2010) by arguing that the resilient region can be seen as a prototype bioregion. The transition from a proto-bioregion to a bioregion, and thus from proto-bioregionalism to bioregionalism proper, is examined. The paper begins with a review of the existing literature on regional resilience. The authors then explore the possible heterodox theoretical underpinnings of this approach, drawing on post-Keynesian, Marxian and green economy concepts. The paper’s final section extends the theory to a bioregional conclusion, and discusses the policy approaches that might be applied to extend a resilient region into a bioregion. Length: 30 Creation-Date: 2014-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1407.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1407 Classification-JEL: B50, P16, Q57, R10 Keywords: Bioregion, green economy, resilient regions, post-Keynesian Handle: RePEc:pke:wpaper:PKWP1407 Template-Type: ReDIF-Paper 1.0 Author-Name: Sheila C. Dow Author-Name-First: Sheila Author-Name-Last: Dow Author-Email: s.c.dow@stir.ac.uk Author-Workplace-Name: University of Stirling Title: Consistency in pluralism and microfoundations Abstract: John King has made challenging contributions to our thinking in many areas. This paper focuses on two of these: the case for pluralism and the case against requiring macroeconomic theory to be expressed in terms of its microfoundations. The purpose of this paper is to explore further the relationship between the two, requiring discussion of the relationship between the different levels of philosophy, methodology, theory and reality. A particular focus is put on the role of the concept of consistency in these two papers. This concept is explored further here at different levels and according to different methodological approaches. The contrast is drawn between its meaning in classical logic and in human logic. Length: 30 Creation-Date: 2014-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1408.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1408 Classification-JEL: B40, B50 Keywords: Consistency, pluralism, microfoundations Handle: RePEc:pke:wpaper:PKWP1408 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Alexander Guschanski Author-Name-First: Alexander Author-Name-Last: Guschanski Author-Name: Karsten Kohler Author-Name-First: Karsten Author-Name-Last: Kohler Title: Unemployment, capital accumulation and labour market institutions in the Great Recession Abstract: The paper restates the post-Keynesian view of unemployment within a NAIRU framework. In the short run the private effective labour demand need not be downward sloping because of debt deflation and wage-led demand regimes. In the medium run the NAIRU will be endogenous because of the social norm character of wage setting and the supply-side effects of capital accumulation. Capital investment rather than labour market institutions is the crucial variable that explains changes in unemployment performance. We provide econometric evidence that the post-Keynesian view holds up well in the recession following the crisis 2008. Length: 30 Creation-Date: 2014-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1406.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1406 Classification-JEL: E12, E24, E25 Keywords: Unemployment, NAIRU, Post Keynesian economics, panel analysis Handle: RePEc:pke:wpaper:PKWP1406 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Jo Michell Author-Name-First: Jo Author-Name-Last: Michell Title: Pseudo-Goodwin cycles in a Minsky model Abstract: Goodwin cycles result from the dynamic interaction between a profit-led demand regime and a reserve army effect in income distribution. The paper proposes the concept of a pseudo-Goodwin cycle. We define this as a counter-clockwise movement in output and wage share space which is not generated by the usual Goodwin mechanism. In particular, it does not depend on a profit-led demand regime. As a demonstration, a simple Minsky model is extended by adding a reserve army distribution adjustment mechanism. The wage share responds positively to output but generates no feedback. In the augmented Minsky model, cycles are generated purely through the interaction between financial fragility and demand. By design, demand is not influenced by changes in income distribution. But the model does exhibit a pseudo-Goodwin cycle in the output-wage share space. This holds true even if a wage-led demand regime is introduced. This demonstrates that the existence of a counter-clockwise movement of output and the wage share cannot be regarded as proof of the existence of a Goodwin cycle and a profit-led demand regime. Length: 30 Creation-Date: 2014-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1405.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1405 Classification-JEL: E11, E12, E32 Keywords: Business cycles, Goodwin cycle, Minsky cycle, financial fragility, distribution cycles, Post Keynesian economics Handle: RePEc:pke:wpaper:PKWP1405 Template-Type: ReDIF-Paper 1.0 Author-Name: Walid Qazizada Author-Name-First: Walid Author-Name-Last: Qazizada Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: Government spending multipliers in contraction and expansion Abstract: This paper investigates the impact of government spending on output and the size of the spending multiplier during periods of output contraction vs. expansion. It also investigates the impact of spending when the economy hits the nominal zero lower bound. It uses a panel of 21 advanced countries over the period of 1979-2011, applying a TSLS estimation technique. We find a spending multiplier of close to 1 during expansion and values of up to 3 during contractions. However, our results do not indicate a difference in the impact of spending during nominal zero lower bound periods. Length: 30 Creation-Date: 2014-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1404.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1404 Classification-JEL: C36, E62 Keywords: Fiscal multiplier, fiscal policy, panel analysis, output contraction Handle: RePEc:pke:wpaper:PKWP1404 Template-Type: ReDIF-Paper 1.0 Author-Name: Konstantinos Loizos Author-Name-First: Konstantinos Author-Name-Last: Loizos Title: How financial innovation might cancel out bank regulation along financial cycles. A Keynes's state of confidence interpretation Abstract: The question posed in this paper is how financial innovation may render conventional bank regulation ineffective. It is argued that the root cause as well as the essence of financial innovation is the predominance of trust in the financial markets, as it is confidence in the financial markets which makes the acceptance of financial innovation possible. In particular, mutual trust in the interbank market depends on the degree of confidence by which expectations are held, which, in turn, affects the relevant risk premia. Consequently, bank regulation may fail to accomplish its stabilization purpose if it cannot check overconfidence in the upswing or inspire and redress lack of confidence in the downturn. Length: 30 Creation-Date: 2014-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1403.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1403 Classification-JEL: G01, G28 Keywords: Financial innovation, bank regulation, state of confidence, financial cycles Handle: RePEc:pke:wpaper:PKWP1403 Template-Type: ReDIF-Paper 1.0 Author-Name: Guglielmo Forges Davanzati Author-Name-First: Guglielmo Author-Name-Last: Forges Davanzati Title: Unemployment benefits, the 'added worker effect' and income distribution in a monetary economy Abstract: This paper focuses on the effects of public expenditure for unemployment benefits on the path of income distribution, within the theoretical framework of the monetary theory of production. By contrast to the standard view that unemployment benefits produce bad macroeconomic performances, it will be argued that – by increasing total demand – they boost the level of employment. The increase in the level of employment contributes to generate an ‘added worker effect’, which, in turn, pushes the Government to pay further unemployment benefits. At the same time, once firms’ fixed capital has been completely exploited, firms’ money profits at the aggregate level grow. This, in turn, generates inflationary pressures which reduces real wages. Moreover, following the Smithian argument that increase in demand fosters division of labour within firms, this policy can increase labour productivity, thus eventually counterbalancing the inflationary pressures associated to profits increases. A different policy option has been suggested, where – for the sake of allowing more ‘security’ to workers - the state directly supplies them with goods and services. Length: 30 Creation-Date: 2014-02 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1402.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1402 Classification-JEL: E12, H53, J50, J65 Keywords: Monetary theory of production, wage bargaining, unemployment benefits Handle: RePEc:pke:wpaper:PKWP1402 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Title: The Euro crisis and contradictions of Neoliberalism in Europe Abstract: Neoliberalism has not given rise to a sustained profit-led growth process, but to a finance-dominated accumulation regime in which growth relies either on financial bubbles and rising household debt (‘debt-driven growth’) or on net exports (‘export-driven growth’). The financial crisis that began in the market for derivatives on the US subprime mortgage market has translated into the worst recession since the 1930s. In Europe the crisis has been amplified by an economic policy architecture (the Stability and Growth Pact) that aimed at restricting the role of fiscal policy and insulating monetary policy and central banks from national governments. The crisis has thus led to a sharp economic divergence between core and peripheral countries. Contrary to the situation in the (export-driven) Germanic core of Europe, the crisis is escalating in the (debt-driven) southern countries of Europe. The paper interprets the policy regime as the outcome of national elites’ attempt to use European integration as a means to constrain nation states. The result is a policy regime that has fatally weakened nation states as regards their fiscal and monetary capacities without creating a European state. Length: 30 Creation-Date: 2014-01 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1401.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: PKWP1401 Classification-JEL: E02, E12, E50, E60, F50, P16 Keywords: Euro crisis, neoliberalism, European economic policy, European integration, financial crisis, sovereign debt crisis Handle: RePEc:pke:wpaper:PKWP1401 Template-Type: ReDIF-Paper 1.0 Author-Name: Sheila C. Dow Author-Name-First: Sheila Author-Name-Last: Dow Title: Framing finance: A methodological account Abstract: The way in which financial markets are framed depends on who is doing the framing, although there are reflexive interdependencies between these framings. Mainstream economics frames financial markets as archetypical competitive markets, focusing on prices as the key information on which to base analysis. This follows from traditional positivist methodology where computability is the key to theory appraisal. Central banks draw on this analysis for their own framing, but modify it significantly in the face of the requirement to take decisions under palpable uncertainty; some understanding is perceived to be necessary for prediction. Participants in financial markets in turn employ quantitative models for forming their expectations; in conditions of market turbulence the limits to these models become evident, and indeed material to prices themselves. Further, for these participants, markets are a social phenomenon. Finally the households and firms whose experience of financial markets enables or constrains spending frame financial markets in yet another way. The underlying argument of the paper is that the way in which financial markets are framed in theory should reflect the different framings in the economy, and that this would benefit from input from other disciplines. Length: 30 Creation-Date: 2013-12 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1308.pdf File-Format: Application/pdf File-Function: First version, 2013 Number: PKWP1308 Classification-JEL: B00, E44, E58, G02 Keywords: Framing, finance, monetary policy Handle: RePEc:pke:wpaper:PKWP1308 Template-Type: ReDIF-Paper 1.0 Author-Name: Anthony J Laramie Author-Name-First: Anthony J Author-Name-Last: Laramie Author-Name: Douglas Mair Author-Name-First: Douglas Author-Name-Last: Mair Title: Fiscal policy: Its role in an independent Scotland Abstract: In this paper we consider the implications for macroeconomic fiscal policy in Scotland if the Scottish electorate votes in favour of independence in the referendum on 18 September, 2014. We offer the paper in the spirit of the new thinking that the Scottish government's Fiscal Commission has argued will be required if the potential benefits from the exercise of independently determined macroeconomic policy instruments are to be achieved. Length: 30 Creation-Date: 2013-11 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1307.pdf File-Format: Application/pdf File-Function: First version, 2013 Number: PKWP1307 Classification-JEL: E62, F52, H77, R11 Keywords: Scotland, fiscal policy, secession Handle: RePEc:pke:wpaper:PKWP1307 Template-Type: ReDIF-Paper 1.0 Author-Name: Ioana Negru Author-Name-First: Ioana Author-Name-Last: Negru Title: How reflexive have economists been in the wake of the crisis: 'The times they are a -changin'? Abstract: The current global economic crisis provides a window of opportunity for both reflection and change within economics. This paper examines the response of the discipline to questions surrounding the need for change by surveying commentaries provided by economists (and to some extent economic commentators) within the media and literature of professional economics associations. The paper seeks to address two questions. Firstly, is there recognition that the economic crisis poses serious questions for the discipline of economics – and if so what is the scale and nature of this self-awareness? Secondly, the paper seeks to identify the type of diagnoses being provided by the economics profession in terms of whether the clamor for change relates to focus, theoretical framework, or methodological foundations of the disciplines (or all three). Empirical findings suggest that future effort might be better directed towards economic theory and its assumptions rather than towards method and methodology. Length: 30 Creation-Date: 2013-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1306_3ILSgy3.pdf File-Format: Application/pdf File-Function: First version, 2013 Number: PKWP1306 Classification-JEL: A10, B10, B40 Keywords: Reflexivity, change in economics, methodology in economics, economic crisis, economists’ practices Handle: RePEc:pke:wpaper:PKWP1306 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Goda Author-Name-First: Thomas Author-Name-Last: Goda Title: The role of income inequality in crisis theories and in the subprime crisis Abstract: An increasing number of economists argue that income inequality was a root cause behind the subprime crisis of 2007. The aim of this paper is to outline and contrast the theoretical underpinnings of Marxian, Post Keynesian and mainstream crisis theories and to compare their viewpoints regarding the role that inequality plays. The main finding of this paper is that despite important theoretical differences, economists from all three strands provide a similar explanation for the link between inequality and the subprime crisis (even though conventional mainstream crisis theories do not regard inequality as destabilizing factor). This suggests that the rise in income inequality indeed played an important role in the build-up of the crisis. To ensure that a wider audience accepts inequality as a prominent causal factor for the crisis it is however necessary that the negative effects of wealth concentration are also taken into account. Length: 30 Creation-Date: 2013-05 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1305.pdf File-Format: Application/pdf File-Function: First version, 2013 Number: PKWP1305 Classification-JEL: B00, D30, E25, G01 Keywords: Income inequality, crisis theories, subprime crisis Handle: RePEc:pke:wpaper:PKWP1305 Template-Type: ReDIF-Paper 1.0 Author-Name: Özlem Onaran Author-Name-First: Özlem Author-Name-Last: Onaran Author-Name: Giorgos Galanis Author-Name-First: Giorgos Author-Name-Last: Galanis Title: Income distribution and aggregate demand: A global Post-Keynesian model Abstract: This paper estimates the effects of a change in the wage share on growth at a national and global level in the G20 countries. A decrease in the wage share leads to lower growth in the euro area, Germany, France, Italy, UK, US, Japan, Turkey, and Korea, whereas it stimulates growth in Canada, Australia, Argentina, Mexico, China, India, and South Africa. However, a simultaneous decline in the wage share in all these countries leads to a decline in global growth. Furthermore, Canada, Argentina, Mexico, and India also contract when they decrease their wage-share along with their trading partners. Length: 30 Creation-Date: 2013-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1303_ZPdxgqm.pdf File-Format: Application/pdf File-Function: First version, 2013 Number: PKWP1304 Classification-JEL: E21, E22, E25, F43 Keywords: Wage share, growth, global multiplier, consumption, investment, exports, imports, G20, developed and developing countries Handle: RePEc:pke:wpaper:PKWP1304 Template-Type: ReDIF-Paper 1.0 Author-Name: Thomas Goda Author-Name-First: Thomas Author-Name-Last: Goda Title: Changes in income inequality from a global perspective: An overview Abstract: Rising income inequality has recently moved into the centre of political and economic debates in line with increasing claims that a global rise in income inequality might have been a root cause of the subprime crisis. This paper provides an extensive overview of world scale developments in relative (i.e. proportional) income inequality to determine if the claims that the latter was high prior to the crisis are substantiated. The results of this study indicate that (i) non-population adjusted inequality between countries (inter-country inequality) increased between 1820 and the late 1990s but then decreased thereafter, while there was a steady decrease after the 1950s when population weights are taken into account; (ii) income inequality between ‘global citizens’ (global inequality) increased significantly between 1820 and 1950, while there was no clear trend thereafter; (iii) contemporary relative income inequality within countries (intra-country inequality) registered a clear upward trend on a global level since the 1980s. Length: 30 Creation-Date: 2013-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1303.pdf File-Format: Application/pdf File-Function: First version, 2013 Number: PKWP1303 Classification-JEL: D31, N30 Keywords: Personal income distribution, trends in income inequality Handle: RePEc:pke:wpaper:PKWP1303 Template-Type: ReDIF-Paper 1.0 Author-Name: Olivier Allain Author-Name-First: Olivier Author-Name-Last: Allain Author-Name: Jochen Hartwig Author-Name-First: Jochen Author-Name-Last: Hartwig Author-Name: Mark Hayes Author-Name-First: Mark Author-Name-Last: Hayes Title: Effective demand: Securing the foundations - A symposium Abstract: This Symposium consists of individual comments by three authors on papers previously published by the other two (Allain, 2009, Hartwig, 2007 and Hayes, 2007) on the topic of Keynes’s principle of effective demand as set out in The General Theory. The Symposium includes updated versions of PKSG working papers 1210, 1211 and 1212 together with an introduction by all three authors. As Allain puts it, there is a closure problem, in our understanding if not in The General Theory itself. Allain’s solution is to redefine effective demand so that it becomes the end point of a process of convergence of expectations on outcomes. Hartwig (following Chick, 1992, in particular) requires entrepreneurs to form a view about aggregate demand rather than simply their own industry price. Hayes retains Keynes’s definition of effective demand and price-taking firms but introduces a division of entrepreneurs between employers and dealers which is not explicit in Keynes’s text. Length: 30 Creation-Date: 2013-04 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1302.pdf File-Format: Application/pdf File-Function: First version, 2013 Number: PKWP1302 Classification-JEL: B22, B31, E12 Keywords: Keynes, effective demand, formation of expectations Handle: RePEc:pke:wpaper:PKWP1302 Template-Type: ReDIF-Paper 1.0 Author-Name: Mark Hayes Author-Name-First: Mark Author-Name-Last: Hayes Title: Ingham and Keynes on the nature of money Abstract: This paper compares and contrasts the thinking of Keynes and Geoffrey Ingham, focussing mainly on The General Theory and Ingham’s The Nature of Money (2004). Two points in particular are addressed: first, the relevance of Ingham’s insistence (following Keynes, among others) on the primacy of money of account to an understanding of Keynes’s own insistence that income is intrinsically monetary and upon the importance of the wage unit as an analytical tool; and second, the subtle contrast between Keynes and Ingham in their understandings of the source of interest as a genuinely monetary and not a ‘real’ phenomenon. Where Keynes identifies uncertainty as the source of interest within a methodologically individualistic framework of analysis, Ingham offers a sociological case in terms of the struggle between the debtor and creditor interests that inevitably emerge as a result of the creation of bank money under capitalism. Taking both points together, Ingham’s work not only underpins the crucial distinction between money and ‘real’ wages for the theory of employment but also develops Keynes’s recognition of the potential opposition between the interests of finance and industry. Length: 30 Creation-Date: 2012-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1209.pdf File-Format: Application/pdf File-Function: First version, 2012 Number: PKWP1209 Classification-JEL: B12, B31, E01, E42, E43 Keywords: nature of money, nature of income, theory of interest Handle: RePEc:pke:wpaper:PKWP1209 Template-Type: ReDIF-Paper 1.0 Author-Name: Engelbert Stockhammer Author-Name-First: Engelbert Author-Name-Last: Stockhammer Author-Name: Dimitris Sotiropoulos Author-Name-First: Dimitris Author-Name-Last: Sotiropoulos Title: Rebalancing the Euro area: The costs of internal devaluation Abstract: This paper investigates the economic costs of Euro area rebalancing. Based on an old Keynesian model we estimate a current account equation, a wage-Phillips curve and an Okun’s Law equation. All estimations are carried out for a panel of eleven Euro area members (excluding Luxembourg). From the estimation results we calculate the output costs of reducing current account deficits. Greece, Ireland, Italy, Portugal and Spain (GIIPS) had, on average, current account deficits of 8.4% of GDP in 2007. To eliminate these current account deficits, it would necessitate a reduction of GPD by some 47%. These are staggering amounts and, indeed we think that such a reduction of GDP should not be imposed in the GIIPS group. Moreover, we doubt whether it would be politically feasible. In principle there are two ways that trade imbalances could be resolved: deflationary adjustment in the deficit countries or inflationary adjustment in the surplus countries. Presently, the burden of adjustment is exclusively on the deficit countries. Our results indicate that the economic costs of this adjustment to those countries are equivalent to the output loss of the Great Depression. An adjustment of the surplus countries would increase growth and it would come with higher inflation, but it would allow rebalancing without a Great Depression in parts of Europe. Length: 30 Creation-Date: 2012-07 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1206.pdf File-Format: Application/pdf File-Function: First version, 2012 Number: PKWP1206 Classification-JEL: E12, E60, F40 Keywords: Rebalancing, Euro area, current account, Phillips curve, Okun’s law Handle: RePEc:pke:wpaper:PKWP1206 Template-Type: ReDIF-Paper 1.0 Author-Name: Mark Hayes Author-Name-First: Mark Author-Name-Last: Hayes Title: The state of short-term expectation Abstract: The claim that Keynes makes a tacit assumption in Chapter 3 of The General Theory, that short-term expectations are fulfilled, is unwarranted and unnecessary. The seminal paper by Kregel (1976) and its subsequent development by Chick, among others, which has contributed to the general acceptance of this claim, is critically evaluated in depth. The present paper clears the ground for a recognition that Keynes instead adopted the assumption of judicious foresight, which would now be called short-term rational expectations. This recognition in turn should encourage a reappraisal of Keynes’s thought, by mainstream economists and others. Length: 30 Creation-Date: 2011-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1107.pdf File-Format: Application/pdf File-Function: First version, 2011 Number: PKWP1107 Classification-JEL: B22, B31, E12 Keywords: Keynes, effective demand, formation of expectations Handle: RePEc:pke:wpaper:PKWP1107 Template-Type: ReDIF-Paper 1.0 Author-Name: Tanweer Ali Author-Name-First: Tanweer Author-Name-Last: Ali Title: The UK future jobs fund: The Labour party's adoption of the job guarantee principle Abstract: This paper examines the development of employment policy in the United Kingdom. Past public-sector direct employment schemes, including those associated with the workfare model, had been discredited as ineffective across the OECD. In numerous countries, however, newer job creation schemes were implemented from the 1990s, aimed at addressing some of the shortcomings of earlier projects, and utilizing the growth of smaller community-based projects – the Intermediate Labour Markets, or ILMs. With the onset of the current economic downturn, and the substantial rise in cyclical unemployment, policy-makers more closely examined options for a demand-led strategy. Although ILMs had not been created with a view to forming part of a comprehensive job guarantee, the potential of these schemes to form part of a wider national strategy was clearly seen. In 2009 the government announced a job guarantee for young people, the Future Jobs Fund. This initiative was inspired at least in part by the work of Hyman Minsky. Although the Future Jobs Fund was scrapped in May 2010, it represents a bold step in active labour market policy. Subsequent analysis of the data related to the Future Jobs Fund indicate that it was a success, achieving its goals even under conservative assumptions. Length: 30 Creation-Date: 2011-09 File-URL: https://www.postkeynesian.net/downloads/working-papers/PKWP1106_iJpV62V.pdf File-Format: Application/pdf File-Function: First version, 2011 Number: PKWP1106 Classification-JEL: E61, H41, I31, I38, J23, J68 Keywords: Job guarantee, full employment, unemployment, work, community Handle: RePEc:pke:wpaper:PKWP1106