Foundations Of Macroeconomics Research Articles

Post-Keynesian Financialised growth models as an alternative to Varieties of Capitalism: (in)stability, institutions and taxonomic method

This article evaluates the potential of the Post-Keynesian literature on growth models to gain influence over the Varieties of Capitalism approach within Comparative Political Economy. It shows that the future analytical strength of the latter approach depends, primarily, on the ability to consolidate macroeconomic principles consistent with a dynamic reality. On the other hand, Post-Keynesian macroeconomic foundations allow financialised growth models to capture the importance of power struggles in long-term growth as well as to integrate crises as recurrent and inherent phenomena to capitalist economies. That said, Post-Keynesian challenge to become a beacon within CPE lies on moving beyond country-based analyses towards the construction of a systematic association between, on the one hand, the institutional aspects shared between countries and, on the other hand, their classification on growth models.

Varieties of demand and growth regimes – post-Keynesian foundations

We review post-Keynesian contributions to demand and growth regime analysis. First, for the theoretical model perspective, we distinguish the Kalecki–Steindl approach and the Sraffian supermultiplier approach as relevant theoretical foundations for demand and growth regime research, with investment-driven and distribution-led growth in the focus of the former and autonomous demand-led growth in the latter. Second, for the empirical-historical perspective, we review different ways of analysing the co-existence of demand and growth regimes in the current period of neoliberal and finance-dominated capitalism. We distinguish, first, a basic national income and financial accounting decomposition approach; second, a Sraffian supermultiplier inspired growth decomposition approach; and third, several lenses looking at growth drivers. We argue that these three levels of analysis are, in principle, not mutually exclusive nor even contradictory, but that they rather complement each other. We conclude that, in particular, the PK analysis of growth drivers provides several systematic links with comparative and international political economy approaches, when it comes to the introduction of the political economy dimension (social blocs, growth coalitions, changes in institutions favouring certain types of re-distribution and economic policies, etc.), while the national income and financial accounting, as well as the Sraffian supermultiplier growth accounting decomposition approaches provide the consistent macroeconomic foundations for such synthetic approaches.

Exploring Economic Growth Determinants in Developing Countries of Asia and Africa

Asian and African regions have experienced periods of economic growth, yet they continue to grapple with distinct challenges and issues that hinder their ability to sustain and distribute that growth effectively. In addressing this concern, our research investigates the impact of exports, exchange rates, foreign direct investment, bank credit, government spending, and the Human Development Index on the economic growth of developing nations in Asia and Africa. The employed methodology is the panel least square method, which utilizes secondary data. The Asian region comprises 28 countries, and Africa encompasses 34 countries, from 1946 to 2018. The outcomes of the study reveal that within developing Asian countries, variables such as exports, exchange rates, foreign direct investment, bank credit, government spending, and the Human Development Index have positive and noteworthy effects on economic growth. In the context of African nations, the research finds that exports, exchange rates, and government spending have favorable and significant impacts. However, the Human Development Index displays a detrimental and significant influence. On the other hand, foreign direct investment and bank credit exhibit positive yet inconsequential effects on economic growth in developing African countries. Consequently, these findings underscore the need for robust macroeconomic foundations in developing economies to counteract global economic uncertainties. This strategy is imperative to facilitate swift economic expansion that aligns with each nation's distinctive economic development plans.

Optimal Growths from Two Perspectives, with Conditional Macro- and Micro-consistency: Dynamic Summation of Economic Variables Under Differential Regional Representative Production Functions

AbstractAlthough the representative theory of consumer/firm is widely used in particular forms of utility and production functions, is the optimal growth model adequately supported by a multi-regional microeconomic base in a “general form of utility and production functions”? Is the “optimization of macro-aggregate functions” consistent with the “summation of micro-optimal outcomes”? Economists have explored the problem of summation of macro-variables in a special form of production and utility function setting to find some theoretical foundations of macroeconomics in the case of heterogeneous representative consumers. However, heterogeneous representative producers have not been studied enough, and the conclusions are too dependent on the functional form. This study searches for the conditions for macroeconomics to reach micro-foundations in the framework of heterogeneous producers and general functions. Linking the entire macroeconomy through inter-regional capital flows, we distinguish between using and equity capital, construct a multi-regional dynamic optimal growth model in a homogeneous representative consumer and heterogeneous representative manufacturers, compare the summation of the regional dynamics with the aggregate macro-dynamics, and find that (A) the regional and macro-perspectives are generally inconsistent in their optimization results; (B) if the population growth rate is the same across regions, the macro-steady state is a weighted summation of the steady states; and (C) if the inverse of the absolute risk aversion is linearly additive to consumption, the model is reliable. In particular, CARA and CRRA-type utility functions are eligible. The eligible utility function can only be an exponential utility function or a power function utility function (the logarithmic utility function can be considered a degenerate power function utility).

Revisiting Islamic Economics: Comment on Baaquie (2023)

This article is a comment on Baaquie (2023). It revisits important discussions on Islamic Economics. I argue that historically Islamic economics is juxtaposed with capitalism and communism with the intent that somehow Islamic economics was capable of improving on the performance of both these systems. Baaquie (2023) is an interesting and important contribution as it tries in its own way to revive the old debates on Islamic economics but at the same time setting a direction which in many ways is also novel. In this “comment” on Baaquie (2023) I discuss the academic reasoning used to make the arguments, the paper’s departure from the existing literature on Islamic economics along with the main argument of the paper. Here I pay particular attention to Baaquie’s (2023) approach of distinguishing the micro and the macro economy in an attempt to establish the macroeconomic foundation of Islamic economics.

Chris Freeman's concept of evolution–A critique of the misuse of biological analogies in macroeconomics

On the occasion of the centenary of the birth of Chris Freeman, this paper presents an overview and analyzes his concept of economic evolution and his other contributions to the field of economics. Chris Freeman was one of the leading economists in the field of evolutionary economics during the second half of the twentieth century. Together with Richard Nelson and Sidney Winter, as well as a number of other scholars, he contributed to establishing and developing a research program which extends from opening the black box of innovation through to the macroeconomic implications of long-term changes in the economy, technology and social organization. Additionally, Freeman suggested a new macroeconomic foundation for microeconomics – the unfinished legacy of our science. The chapter investigates how these foundations were developed as a critical view of inadequate metaphors from biology.

Post-Keynesian Macroeconomic Foundations for Comparative Political Economy

The global financial crisis and ensuing weak growth have increased interest in macroeconomic issues within comparative political economy (CPE). CPE, particularly the dominant Varieties of Capitalism approach, has based its analyses on mainstream economics, which limits analysis of the relation between distribution and growth and neglects the role finance plays in modern economies. It overstates the stability of the capitalist growth process and understates the potential effectiveness of government interventions. Baccaro and Pontusson have suggested a post-Keynesian (PK) theory of distribution and growth as an alternative. This article generalizes their point. PK theory highlights the instability of the growth process and lends itself to an analysis of income distribution and power relations. The article identifies the analysis of financialization and financial cycles, the understanding of neoliberal growth models, and the political economy of central banks as areas where PK economics provides specific insights for CPE. It also highlights that these arguments have important implications for government policy in an era of secular stagnation with ongoing social, distributional, and economic crises.

Some Cultural Foundations of Financial Macroeconomics

Mainstream economists concede that finance tests the deductive powers of the microfoundations model. Accordingly, we attempt to derive a structural model inductively through use of empirical studies and history. Culture is the means by which a task is set about. The term consists of the following elements. The unit of analysis is groups or classes as found in National Income accounts. The connection between them does not consist of substitution effects or conflict but complementarities and cooperation. Secondly, the economy is defined as the inseparable composite of the fiscal and the monetary authorities and the components of the private sector. Finally, finance eases the flow of production and consumption and investment. However, banks are beset with problems of asymmetric information and runs. Additionally, market finance is prone to bubbles and crashes. Elements of culture are required to hold fast during the interactions between the financial and the real world.

Neoliberalismen som dominerende makroøkonomisk diskurs

This paper demonstrates that mainstream General Equilibrium Models (GEM) are dominated by neoliberal ideology. These mathematical models are pre-designed to always converging full-employment equilibrium and private-sector equilibrium. The behavioural equations are derived from the assumption of individual utility and profit maximization and the rational expectation (full foresight) hypothesis. Accordingly, policy recommendations consistent with GEM are neoliberal as they advocate (1) avoiding demand management; (2) balancing the public sector’s (structural) budget; and (3) leaving monetary policy to an independent central bank with responsibility for price stability; while (4) distributional and environmental consequences for production are considered irrelevant. This is illustrated by examples from the Danish macroeconomic environment where GEM (ADAM and DREAM) employed by the Treasury and the Council of Economic Advisors are dominant when it comes to medium and long-term policy recommendations. Finally, the article challenges this logic and objective foundation of mainstream macroeconomics.

Physical Macroeconomics: Part II - Thermodynamics and Physical Macroeconomics

This article is the second one in a series of publications representing the natural science foundations of macroeconomics. Classical thermodynamics is the most important natural science justification for physical macroeconomics. The general properties of the global economy, as compared with the physical properties of the thermodynamic system, are considered. We introduce thermodynamic terms that apply to the economy: open system, environment, system boundary, external (primary) energy, useless energy (entropy), working potential (free energy), first and second laws, working cycle and its efficiency, etc.

Physical Macroeconomics: Part I - Basic Concepts

This article is the leading one in a series of articles describing the results of 15 years of independent research by the author. This series presents the updated and expanded results of these studies, which were previously presented in the book “Natural Science Foundations of Macroeconomics: The Global Economy as a Living System” (Faculty Management Press, Warsaw 2018).

Income Distribution and Growth Models: A Sectoral Balances Approach

This article revisits the macroeconomic foundations and political economy of national growth models. It argues that the neo-Kaleckian model, which inspired the emergent growth model perspective and focuses primarily on the functional income distribution, can be usefully complemented by theories of private household consumption that focus on the personal distribution of income. The examples of the export-led and debt-led growth models of Germany and the United States, respectively, show how institutional differences help to explain why different countries developed different patterns of income distribution and how income distribution and institutions interacted to generate financial imbalances in different sectors of the economy (i.e., the private household sector, the private corporate sector, and the government sector).

Macroeconomics Needs Fresh Methodology of Theorization

In this paper, we try to analyze the macroeconomic reasoning in different methodological issues. Subsequently, we try to touch some current macroeconomic debates on aggregations, relations, monetary and real sectors analyses. We assess that what we know about the behavior of macroeconomic variables is just our understanding from empiricism, and we have rarely found the laws of linkages among macroeconomic variables. We also conclude that successive theories have an intuitional foundation. It seems that to improve macroeconomic theories and policies, we need to be redirected to basic philosophical thinking about the macroeconomic theoretical foundation and try to rebuild a new concrete base for macroeconomics.

More is different ... and complex! the case for agent-based macroeconomics

This work nests the Agent-Based macroeconomic perspective into the earlier history of macroeconomics. We discuss how the discipline in the 70’s took a perverse path relying on models grounded on fictitious rational representative agent in order to try to pathetically circumvent aggregation and coordination problems. The Great Recession was a natural experiment for macroeconomics, showing the inadequacy of the predominant theoretical framework grounded on DSGE models. After discussing the pathological fallacies of the DSGE-based approach, we claim that macroeconomics should consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This in turn implies that more is different: macroeconomics cannot be shrink to representative-agent micro, but agents’ complex interactions lead to emergence of new phenomena and hierarchical structure at the macro level. This is what is taken into account by agent-based models, which provide a novel way to model complex economies from the bottom-up, with sound empirically-based microfoundations. We present the foundations of Agent-Based macroeconomics and we discuss how the contributions of this special issue push its frontier forward. Finally, we conclude by discussing the ways ahead for the fully acknowledgement of agent-based models as the standard way of theorizing in macroeconomics.

More Is Different … and Complex!: The Case for Agent-Based Macroeconomics

This work nests the Agent-Based macroeconomic perspective into the earlier history of macroeconomics. We discuss how the discipline in the 70’s took a perverse path relying on models grounded on fictitious rational representative agent in order to try to pathetically circumvent aggregation and coordination problems. The Great Recession was a natural experiment for macroeconomics, showing the inadequacy of the predominant theoretical framework grounded on DSGE models. After discussing the pathological fallacies of the DSGE-based approach, we claim that macroeconomics should consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This in turn implies that more is different: macroeconomics cannot be shrink to representative-agent micro, but agents’ complex interactions lead to emergence of new phenomena and hierarchical structure at the macro level. This is what is taken into account by agent-based models, which provide a novel way to model complex economies from the bottom-up, with sound empirically-based micro-foundations. We present the foundations of Agent-Based macroeconomics and we discuss how the contributions of this special issue push its frontier forward. Finally, we conclude by discussing the ways ahead for the fully acknowledgement of agent-based models as the standard way of theorizing in macroeconomics.

РЕГИОНАЛЬНАЯ ДИНАМИЧЕСКАЯ СТОХАСТИЧЕСКАЯ МОДЕЛЬ ОБЩЕГО РАВНОВЕСИЯ КАК ИНСТРУМЕНТ АНАЛИЗА ФИСКАЛЬНОЙ ПОЛИТИКИ

Using the tools of regional dynamic models for analyzing the economy of the constituent entities of the Russian Federation, in particular, for studying regional business cycles is currently an urgent task. It is determined by the need to develop system conceptions about the factors, conditions and prerequisites for the development of regions, about the features and trends of the dynamics of their sector and territorial structure. The purpose of the article is to develop a dynamic stochastic multi-sector model for analyzing the effects of regional economic policy. The scientific novelty of the research concerns the development and implementation of dynamic models with microeconomic justification to formalize the processes of regional development, the sustainability of regional policy and spatial development. Similar class of models, that forms the theoretical foundation of contemporary macro-economics, is currently used for the analysis of national economy mostly. Models of such class that describe the processes in the regional economy are practically absent. The original tools for the construction of a regional dynamic stochastic general equilibrium model, suggested by the authors, describe the structure of a real sector of the economy of Sverdlovsk region. Parameterization of the model was made on the empirical data basis about the economy of Sverdlovsk region for 2003–2016. The behaviour of the following economic operators has been considered in the model: households; firms operating in the real sector of economy, the regional and federal government, and the Central Bank. Fiscal multipliers for three sectors of the economy – tradable goods sector, non-tradable goods sector and resource sector have been calculated with impulse response functions. The analysis of fiscal multipliers has revealed that the shock of the effective tax rate on individual income and the sock of regional costs have the most significant effect on the output in the above considered sectors of economy among all the rest fiscal shocks. The use of the tools in the form of a historical decomposition of regional variables demonstrates the results of the impact of supply and demand shocks in a time perspective on the output in the three sectors of the regional economy. The results of temporal decomposition of the variations of the endogenous variables mentioned above suggest that the cyclic processes in the regional economy of Sverdlovsk region during the study period are largely due to factors of supply rather than demand. The research results may be used both for the analysis of the regional economic policy priorities and for the development of measures aimed at the decrease of possible crisis phenomena in the regional economy. The trend to the construction of multi-sector models of regional economy in the framework of general equilibrium approach with the macroeconomics justification and rational expectations of economic operators described in the article stresses the importance and prospects of further studies. In particular, to reflect the specifics of the regions, it is necessary to take into account the institutional factors of each region in the model. This issue is an interesting theme for further research in the field of modeling of regional social and economic systems. Keywords region, regional economic policy, dynamic stochastic model, tradable and non-tradable goods sector, resource sector, fiscal multipliers, demand shocks, supply shocks, impulse response functions, historical decomposition of variations of endogenous variables. Acknowledgements The article has been written according to the Plan of Research and Development of the Institute of Economics, the Ural Branch of the Russian Academy of Sciences for 2019–2021.

On the Origins and Legacies of Really Existing Capitalism: In Conversation with Kari Polanyi Levitt

On the Origins and Legacies of Really Existing Capitalism: In Conversation with Kari Polanyi Levitt

Keynes and Samuelson Combined Provided the Complete Foundation for a Science of Macroeconomics: Complexity Modeling Is Welcome, But Not Necessary, for a Scientific Foundation for Macroeconomics

Keynes and Samuelson provided the theoretical, technical and mathematical modeling necessary in order to provide a complete scientific foundation for macroeconomic theory. Keynes’s Aggregate Supply Curve (ASC),presented initially on pp. 55-56 in footnote 2 of the General Theory and in great detail in chapter 20, provided the foundations for incorporating multiple equilibria and degrees of uncertainty, based on his analysis of interval valued probability and weight of the evidence from the A Treatise on Probability, into macroeconomic analysis. Keynes’s 1938-39 work on Harrod’s draft copy of dynamic, intertemporal, economic growth, based on multiplier-accelerator interactions, which generated positive feedback impacts, combined with Samuelson’s work on the interaction of the multiplier and accelerator in 1939 and in his dissertation, showed that microeconomic optimization techniques, based on negative feedback, can’t incorporate interactive feedback impacts. They are inapplicable at a macro level dealing with multiple equilibria. Only the stability properties of the multiple equilibria can be examined. It is impossible to determine whether the many, possible, different equilibriums are optimal in the sense of being full employment equilibriums or unemployment equilibriums. Unfortunately, the current dominant approach to macroeconomics, with its claims of constant, inter-temporal, dynamic utility and profit maximization over all times with known subjective probability distributions, is, as Savage stated, “utterly ridiculous”, as well as being “preposterous”. The Lucas-Real Business cycle model approach to macroeconomics with a single representative agent needs to be replaced as soon as possible by the combined work of J M Keynes and Paul Samuelson that was done in the late 1930’s.

Raising Keynes: A General Theory for the 21st century

Abstract Keynes’s General Theory argues there is no self-regulating mechanism that guarantees full employment. Keynes’s vision has been distorted by mainstream Keynesians to mean that it is the warts on the body of capitalism, not capitalism itself, that are the problem: frictions and imperfections and rigidities may interfere with the mechanism for self-regulation that inheres in the perfectly competitive model. This distortion has two supposed corollaries, first, that the more the economy resembles the textbook model of perfect competition, the less likely are lapses from full employment; second, that since imperfections are limited to the short run, so are lapses from full employment. Keynes was unable to convince the economics profession that the problem is capitalism; that the warts, real though they are, obscure a more fundamental problem. The reason is that Keynes lacked the mathematical tools to substantiate his vision. This paper deploys tools that were unavailable to Keynes, in order to lay the foundations of a Keynesian macroeconomics for the 21st century.

Examination of the China's Model of Economics

Under the framework of the Western mainstream economics, this book uses supply-and-demand relationship to build axiom system of economics, and defines the micro-expansion and macro-regulation as China model, with an attempt to decipher the China model and all micro- or macro-economic phenomena. This book argues that rationality is not the invisible hand, but a necessary condition for the formation of the invisible hand; and the market is not the invisible hand, instead, it is managed by the invisible hand; the invisible hand of the market is competition based on rationality. Competitive market is orderly and efficient, thus there is no need for government intervention. Competition is necessary for China’s micro-expansion. Prices in competitive market can fluctuate, but no hyperinflation will come out. Once hyperinflation exists in the market, it means that the competition between companies and consumers on product prices and demand has failed, the competition between enterprises on product cost performance ratio has failed. Market rationality becomes uproar without competition, but the invisible hand of the market has been unable to manage the market effectively, and a market without management will suffer from bubble-bursting. A hard landing market with banks collapse, stock market crashes, company bankruptcy, unemployment and surplus product market is out of order, not to mention about efficiency. China's macro-regulation can help overheated market to have a soft landing, and restore the ability of the invisible hand to manage the market. Giffen theory of this book explains not only the microscopic phenomena of inflation and deflation, but also the necessity, possibility and universality of macro-regulation of China mode, the former lays a microscopic foundation for macroeconomics, and the latter uses the language of mainstream economics to lay a foundation for China Mode.