Keynesian Growth Model Research Articles

Climate risk and the natural interest rate: An E-DSGE perspective

We examine the effect of climate-induced temporary extreme weather events on the natural real interest rate by incorporating environmental aspects into a Keynesian growth model. We find that environmental damage accentuates the reduction in the natural real interest rate caused by climate-induced temporary supply disruptions, and this effect is even more pronounced when the estimate of the current stock of carbon dioxide in the atmosphere doubles.

The impact of the VAT gap on the degree of taxation of an economy-analisis with panel data

"In this article we use econometric methods to identify and analyze the intensity of potential causality links between the VAT gap and the ability or the performance of a state to collect taxes and, consequently, to finance public projects and programs. This capacity or performance is assessed by the share of tax revenues to GDP, which also reflects the degree of taxation of an economy. On the other hand, the determinants of the VAT gap were investigated. The data set used is of the panel type, consisting of values ​​with an annual frequency, for the period 2014-2019, for 26 Member States of the European Union. The methods used in the analyzis are single and multiple linear regressions on panel data with fixed effects. Based on the results obtained for the mentioned sample, the existence of a statistically significant linear link between the mentioned variables is confirmed, but it was also found that, in general, the performance of tax revenue collection in a certain period depends on the performance of the previous period. Therefore, the influence of other exogenous, economic and non-economic variables is visible, which must be identified and analyzed. However, it was found that the level of government spending, confirming to some extent the Keynesian growth model, significantly influences the level of tax revenue. At the same time, the following variables were found to have an overwhelming influence on the VAT gap: the share of people exposed to the risk of poverty or social exclusion, the level of employees’ compensation, the final household consumption and the level of gross value added created in the economy. All these variables significantly determine the formation of the VAT tax gap, in a proportion of 95%."

Analysing India’s Economic Growth Under Modi: Myth or Reality

In 2016, India became the world’s major fastest growing economy leaving behind China.[1] India was growing at a steady rate of more than seven per cent till the Bharatiyia Janta Party (BJP) government introduced certain policies such as demonetisation initiative and Goods and Services Tax (GST) that severely impacted its economic growth. Since mid-2016 its economic growth started to decelerate and in 2019, India’s economic growth stood at 4.5 per cent even though Modi made tall promises of making India a US$5 trillion economy by 2024. Hence, by using the Keynesian Model of Growth, this paper tries to analyse the performance of Indian economy under Modi’s government, determine the cyclical, structural and global factors that have contributed to India’s slowed economic growth and the impact of Modi’s extremist policies on the Indian economy. This paper identifies demonetisation, GST reforms, falling private consumption, protectionism and strict labour laws and COVID-19 pandemic as the factors behind India’s slowed economic growth under the current regime of Modi.
 
 [1] HerpreetKaur and Jagdeep Singh, “Indian Economy Developments (Special Emphasis on Narendra Modi Era Developments),” IBMRD’s Journal of Management & Research, no. 8 (2019): 35-40.

Capitalism, Rents and the Transformation of Violence

Violence seems on the rise. After centuries of declining homicide rates in the Global North, violence has been transforming since the 1960s and even increased in some parts. In the Global South, in contrast, levels of violence have remained constantly high. The article questions both the liberal peace theory lately highlighted by Steven Pinker as well as Marxist accounts on the relationship between capitalism and increasing violence, lately dubbed accumulation by dispossession. This article elaborates a heterodox Keynesian model of capitalist growth in which growth ultimately depends on rising real wages. Following this Kaleckian model of capitalism, money plays a pivotal role regarding the low propensity for violence in capitalist societies: capitalist credit money tends to alter the matter of dispute from non-divisible to divisible and thus functions as a general denominator for social conflicts. Conflicts in capitalism are about ‘more or less’ instead of ‘either/or’. In the Global South, in contrast, capitalism is too weak to structure the economic sphere as economic rents predominate. Rents tend to favour social closure and social verticalization. They are particularly prone to violence. Inasmuch as economic rents penetrate capitalist societies, violence will be increasing in the Global North as well.

A note on “zero growth and structural change in a post Keynesian growth model”

This note is a critique of the results found by Rosenbaum concerning zero growth and structural change in a post-Keynesian growth model, some of which are shown to be problematic. First, the (im)possibility for a neo-Kaleckian model of growth and distribution to generate a profit-led growth regime is discussed. Next, we review the role played by the “paradox of costs” when introducing the depreciation of capital and how this changes the stability characteristics of the model presented by Rosenbaum. Finally we show that, contrary to what is claimed in the article, the proposed model is not able to show that zero growth is compatible with a positive net rate of profit.

Unemployment and Growth: Putting Unemployment into Post Keynesian Growth Theory

ABSTRACTPost Keynesian (PK) growth models typically fail to model unemployment. That shows up in the absence of an equilibrium condition requiring the growth of employment to equal labor-supply growth. Consequently, the models can have an imploding or exploding unemployment rate. The underlying analytical problem is failure to resolve the Harrod (1939)–Solow (1956) knife-edge problem. This paper shows how that knife-edge problem can be resolved via a Kaldor–Hicks technological progress function. It applies the concept to several different PK growth models. In the Harrod, super-multiplier, Cambridge, and neo-Kaleckian models the warranted rate rules the roost and natural rate forces have no impact on the equilibrium growth rate. However, in a modified neo-Kaleckian model, with labor market distribution conflict, both warranted rate and natural rate forces impact steady state growth.

Capital in the Twenty-First Century: Reinterpreting the fundamental contradiction of capitalism

ABSTRACTAt a theoretical level this article discusses Piketty’s hypothesis that the distribution of income and wealth tends to become more concentrated over time when the rate of return on capital is greater than the growth rate of real output. We develop a post Keynesian model of growth and distribution showing that once capital is differentiated from wealth, the increase in income and wealth concentration actually occurs when the rate of valorization of financial and real estate assets is greater than the growth rate of real output, and that this situation may be triggered by financial liberalization.

Pension funding in a Keynesian model of growth

This paper extends the post-Keynesian model of growth to reflect the feedback between pension funding, income distribution, and capital accumulation in an economy with overlapping generations. Different causal structures highlight factors that impact provision of pensions; conditions under which pension schemes promote economic and employment growth; and class conflict over the distribution of income. One key conclusion is that, as long as capital accumulation remains exogenous, policy and economic behavior of workers and retirees impact economic activity and sustainability of pension funding over transient paths but not at the steady state.

Profit-led growth and the stock market

This paper presents a simple stock-flow consistent model of corporate capitalism with a financial market for firm equities issued by managers as part of their investment plan with the investment rate in turn sensitive to the q ratio, workers who save for life-cycle motives, and capitalist rentier households who save from a bequest motive. The model assumes full capacity utilization; saving and investment decisions are coordinated through changes in the valuation of the capital stock or q ratio. Changes in valuation can induce enough investment and capitalist consumption to fill the demand gap left by a reduction in the wage share. But unless there is a strong sensitivity of investment to the q ratio, the increased profitability will be dissipated in a profit-led stock market boom. The model helps resolve the neoliberal paradox of rising profitability with little growth. It also clarifies the relationship between classical and Keynesian growth models which can be seen as special cases arising from limiting values of the investment sensitivity to the q ratio.

Comparative Analysis of the Effectiveness of Coub-Douglas, Real Business Cycle, and Keynsian Growth Models in Determining Economic Growth in Nigeria

Choosing the most suited growth theory in determining output in Nigeria has been a problem for researchers and policy maker. They have been faced with the question of what drive growth of the Nigerian economy: output derived from supply of capital (savings), or output derived from aggregate demand (spending) or due to shock to technology? This study empirically examined the relative effectiveness of the Cobb-Douglas Production function, the Real Business Cycle model and the Keynesian model to determine growth drivers of the Nigerian economy. Error correction model and vector error correction model was used to examine the relative effectiveness of the three growth models in determining output in Nigeria. The result of the study showed that only the coefficient of technology significantly determined economic growth in Nigeria using the Cobb-Douglas production function. Capital and labour significantly determined gross domestic product in Nigeria in the third year, adopting the vector error correction for the Real Business Cycle model. The Keynesian model proved most significant as all explanatory variables, such a consumption expenditure, investment, government spending and balance of payment were significant determinants of Nigerian economic growth. The explanatory variables jointly contributed the most (58.43%) to the variation in the gross domestic product of Nigeria. Real gross domestic product had positive autonomous growth in the Keynesian model but negative autonomous growth using the other two models. Technology input in production should be boosted by increasing government expenditure in education/ enhanced skill acquisition and the employment of more graduates in the productive sectors of the economy. Researchers and policy makers should henceforth adopt the Keynesian growth model as the most suited for the Nigerian economy.

정부부채동학과 분배 대립: 포스트 케인지언 분석

정부부채동학과 분배 대립: 포스트 케인지언 분석

Rising inequality and stagnation in the US economy

US household demand is well below its trend from prior to the Great Recession. We link weak demand to rising income inequality. The demand problem did not arise contemporaneously with higher income inequality because the bottom 95 percent of the income distribution went deeply into debt to maintain consumption growth despite their stagnant income growth. But we argue that the demand impact of greater inequality did appear in the aftermath of the recession. A calibrated Keynesian growth model shows that the lower income share of the bottom 95 percent can explain the deviation of the US economy from its pre-recession trend.

Zero growth and structural change in a post Keynesian growth model

:Continuous albeit oscillating economic growth has become a hallmark of modern economies. Arguing on the basis of theoretical models, some authors maintain that growth is even a systemic requirement of capitalist economies. Thus the latter remain only stable as long as they grow. From an empirical point of view, phases of negative growth (recessions) often go hand in hand with economically and socially detrimental side effects, which policymakers seek to avoid at virtually all costs. This is why a stagnant or even degrowing economy is also anathema to policymakers and arguably to the public at large. Concomitantly, economic research has focused mainly on the drivers of growth rather than the conditions under which stagnant economies can exist. The present paper seeks to contribute to the analysis of stagnant economies by investigating the interrelationship of zero growth and technological progress in the context of a Kaleckian growth model. The analysis starts by showing that a Kaleckian model allows zero growth if depreciation is taken into account and if animal spirits are somewhat (but not too) pessimistic. Combining these conditions with technological progress and wage bargaining, further analysis then indicates that in a profit-driven economy, the overall stability of the system is no longer guaranteed if zero growth is actively imposed, leading to a downward spiral, while in a wage-driven economy, stability can be induced under conditions of zero growth and technological progress but it may not be guaranteed for positive growth.

Rising Inequality, Demand, and Growth in the US Economy

We use consumption and balance sheet data disaggregated between the top 5% and the bottom 95% of US households by income to show that the bottom 95% went deeply into debt to mitigate the impact of their stagnant incomes on their consumption. We use micro data to calibrate an intrinsic Keynesian growth model and show that over a range of plausible parameter values, the rise in US household income inequality increased enough between the early 1980s and 2000s to cause the entire magnitude of the Great Recession and can explain the slow and prolonged recovery.

Was Ireland's Celtic Tiger Period Profit-led or Wage-led?

This paper examines the macroeconomic performance of the Irish economy in the years leading up to the Celtic Tiger period and afterward, from 1980 to 2011. The goal of the paper is to determine how a severe recession in the 1980s could be followed so quickly by the unprecedented boom years of the Celtic Tiger, and followed again by the marked economic downturn since 2007. I build a Keynesian model of growth that integrates effective demand and productivity regimes to allow for the possibility that a redistribution of income can either spur or retard growth, depending on whether the regime is wage-led or profit-led. Using data for the Irish economy I test this model for wage-led or profit-led growth, finding plausible evidence that the Celtic Tiger years were, in fact, profit led.

On the Endogenous Sustainability of Economic Growth: Why Is the Scale of Government Enlarged?

Almost every developed country experiences serious enlargement of the scale of government, specifically the expansion of fiscal deficits. We inquire why such a phenomenon is so prominent based on a Keynesian growth model entirely compatible with a standard neoclassical microeconomics. The cost-minimizing investment plays a key role. Whenever the demand that each firm faces is constrained by the effective demand (such case includes the situation of monopolistic competition), a firm strives to raise the productivity of labor and save its production cost. Such a process incessantly continues even if the effective demand is kept intact. It also implies that the unemployment would tend to be unbounded because the labor productivity improves under the constant effective demand. As such, a ceaseless expansionary aggregate demand policy is inevitably required for sustaining explosive potentials of production.

Government spending, aggregate demand, and economic growth

This paper develops a simple Keynesian model of growth with endogenous technological change in which the long-run rate of growth of the economy is determined by both demand and supply forces to examine the effects of government fiscal policy. The paper first assumes that the government budget is balanced and shows that the long-run rate of growth of the economy is path-dependent, that fiscal policy affects the rate of growth of the economy in the short run as well as the long run, and that different types of government spending have different effects. It then introduces government deficits and debt into the analysis to show that even if one takes into account adverse effects of debt accumulation on long-term interest rates and investment, fiscal expansion can have positive growth effects.

The limits of Liberalization? American capitalism at the crossroads

From the 1930s to 1970s the United States (US) model of capitalism was based on a Keynesian growth model. Collective bargaining and pro-labour policies were widely accepted. Product market regulation was fairly extensive. Industrial policy in the US was less overt than in other advanced economies, but quite extensive in certain sectors. By the late 1990s the US model had clearly coalesced around a new set of institutions based on a different set of complementarities: deregulated labour markets combined with shareholder-oriented finance and corporate governance to produce a system with highly flexible allocation of productive resources marked by high levels of financialization. This contribution explains this transformation as a combination of three variables: structural features of the US economy; the fragmented institutional character of US policy-making and regulation; and policy convergence between left and right.

Decisions on investment allocation in the post-keynesian growth model

In this article the growth models of Feldman (1928) and Mahalanobis (1953) are extended to consider the analysis of decisions of investment allocation in the context of the Post Keynesian Growth Model. By adopting this approach it is possible to introduce distributive features in the Feldman-Mahalanobis model that allows us to determine the rate of investment allocation according to the equilibrium decisions of investment and savings. Finally, an additional condition is added to the Post Keynesian Growth Model in order to fully characterise the equilibrium path in an extended version of this framework, where capital goods are also needed to produce capital goods.

Was the Celtic Tiger Profit-Led?

This paper examines the macroeconomic performance of the Irish economy in the years leading up to the Celtic Tiger and afterward, from 1980 to 2011. The goal of the paper is to determine how a severe recession in the 1980s could be followed so quickly by the unprecedented boom years of the Celtic Tiger, and followed again by the marked economic downturn since 2007. I build a Keynesian model of growth that integrates effective demand and productivity regimes to allow for the possibility that a redistribution of income can either spur or retard growth, depending on whether the regime is wage or profit led. Using data for the Irish economy I test this model for wage-led or profit-led growth, finding plausible evidence that the Celtic Tiger years were, in fact, profit led.