Foundations Of Macroeconomics Research Articles

Fundamentos macroeconômicos nas perspectivas de Marx e Keynes: contribuições para a heterodoxia

RESUMO: A necessidade de definir fundamentos microeconômicos para os modelos macroeconômicos, presente no pensamento dominante na economia contemporânea, pode ser questionada com base em diferentes abordagens teóricas. Posições como as de Marx e Keynes permitem a apreensão das ações dos agentes econômicos (grupos ou classes) como influenciadas e limitadas pelo ambiente social e macroeconômico, fornecendo visões de fundamentos macroeconômicos da microeconomia, ao invés da visão ortodoxa de fundamentos micro da macroeconomia. Essa forma de apreensão lança luz sobre diferenças de perspectivas da heterodoxia quando se trata de intervir sobre o contexto macroeconômico.

Macroeconomic foundations in the perspectives of Marx and Keynes: contributions to the heterodox thought

The need to define microeconomic foundations for macroeconomic models, which is present in the mainstream thinking in contemporary economics, can be questioned on the basis of different theoretical approaches. Positions like those of Marx and Keynes permit the comprehension of the actions of economic agents (groups or classes) as influenced and limited by the social and macroeconomic environment, providing views of macroeconomic foundations of microeconomics, instead of the orthodox view of micro foundations of macroeconomics. This comprehensionsed slight on distinct perspectives in heterodox thought regarding the intervention in the macroeconomic context. JEL Classification: E11; E12; B50.

Book review: İlker Aslan, Macroeconomic Foundations of Financial Analysis: A Case Study of Turkey as a Monetary Production Economy (Logos Verlag Berlin, Berlin, Germany 2014) 280 pp.

"Book review: İlker Aslan, Macroeconomic Foundations of Financial Analysis: A Case Study of Turkey as a Monetary Production Economy (Logos Verlag Berlin, Berlin, Germany 2014) 280 pp." published on Apr 2016 by Edward Elgar Publishing Ltd.

Comparative Analysis Between the Top-Selling Drugs in the Japanese Pharmaceutical Market and Those in the United States, the United Kingdom, France, and Germany.

Japan is currently the second largest pharmaceutical market in the world, and Japanese pharmaceutical companies are actively seeking to identify assets in other countries. An affluent population provides ample opportunity for pharmaceutical companies to develop within Japan; however, given its weak macroeconomic foundation, Japan is currently seeking to cut costs through the use of more generic drugs and lower prices. Nevertheless, no detailed empirical analyses regarding how Japanese companies can expand their global presence while ensuring domestic sales, or what opportunities lie ahead for global companies planning to enter the Japanese market, have been conducted. To our knowledge, this is the first study to provide statistical evidence regarding characteristics of the Japanese market. The data set for this study was the most recent list of the 100 top-selling drugs globally and in Japan, the United States, the United Kingdom, France, and Germany. The data were obtained from the IMS Japan Pharmaceutical Market database. More cardiovascular and less central nervous system (CNS) and oncology drugs were ranked among the top 100 best-selling drugs in the Japanese market; however, the promotion of CNS and oncology drug development was evident, and competition from generic drugs was shown to have eroded, especially in therapeutic areas with no assured benefits in the global market, such as with cardiovascular drugs. These results suggest that the Japanese market will rival overseas markets in the near future. Pharmaceutical companies should seriously consider operating within Japan, whose market is currently transitioning to a global market.

Assessing global competitiveness under multi-criteria perspective

Nowadays competitiveness has become a key economic feature both in policy and in academia. The Global Competitiveness Index (GCI) of the World Economic Forum is one of the best known competitiveness indices, which measures the microeconomic and macroeconomic foundations of national competitiveness. It conceives competitiveness as the set of institutions, policies and factors that determines the level of productivity of a country. This index allows total substitutability between the twelve pillars that aim to measure the different dimensions of competitiveness, albeit partially modulated by some different weights. In this paper, we implement a multi-criteria approach with new alternative normalization and aggregation formulas for such pillars of competitiveness. In particular, we propose two innovations for the computation of the GCI: (i) a double reference point scheme in the normalization; and (ii) an aggregation function which deals with the problem of substitutability between pillars. We calculate three alternative global competitiveness indices (weak, strong and mixed) with different degrees of substitutability, as well as the mixed index without normalizing. We suggest the use of a suitable mixed index alongside the GCI.

Does Financial Openness Affect Economic Growth in Asian Economies? A Case Study in Selected Asian Economies, 1980-2010

In recent decades, financial liberalization has been one of the most important strategies for Asian countries to promote growth. However, debate emerges following several financial crises on whether liberalizing financial markets and allowing for free access to international capital markets, would benefit or impede economic development. The objective of this study is to examine the impact of financial openness on select seventeen Asian economies and answer the three questions: 1. Is there any linkage between financial openness and economic growth for these seventeen Asian countries? 2. Does any of the financial openness pose positive or negative effects? 3. If no direct impact revealed, can financial openness still have growth effect under certain fundamental or institutional conditions? Our main findings are as follows: 1. By employing both de jure and de facto indicators of financial openness, our empirical results indicate that the de facto indicators are associated with growth of Asian economies but de jure indicator does not show statistically significant impact on growth across three methodologies. 2.Furthermore, these growth effects vary among the de facto indicators. According to our empirical results, out of the four de facto financial openness measurements, only one of them, foreign direct investment inflows, influences growth positively whereas three other measures, including foreign direct investment outflows, portfolio investment inflows and outflows exert negative impact on growth. In terms of the view that the growth effect of the financial openness depends on macroeconomic foundations or institutional conditions of an economy, our findings do not support this view due to the estimation results are not robust across five financial openness proxies.

On Keynesian Macroeconomics and German <I>Ordnungstheorie</I>

The debate on Keynes glossed over his intention to replace classical economic theory by an approach considering the fact of uncertainty in the sense of “there is no scientific basis on which to form any calculable probability whatever. We simply do not know” (Keynes 1937, p. 214). Keynes takes this into account by replacing the (neo-)classical assumption of perfect rational optimizing behavior by psychologically justified behavioral assumptions. As for the rest, he hangs on to the neoclassical model in a “macroeconomic” sense. Later developments based on the micro foundations of macroeconomics disregard the Keynesian uncertainty problem entirely. Given that uncertainty, Keynesians have not much choice but to accept the older social control style of David Hume, also applied by German Ordnungstheorie (system theory) - and there are no reasons for Keynesians to turn their backs on German Ordnungstheorie.

The Age of Symbolic Economic Policies?

This paper offers a few remarks on the so-called heterodoxy commentaries of recent times. It will be highlighted that, in accordance with the growing popularity of non-usual economic policy actions, a set of “tools” is emerging that aims to exert its effects breaking with usual, common, instrumental actions. Outlining a framework of the history of economic thoughts and treating fiscal and monetary policy separately, it will be argued that economic policy only gradually has become capable of applying this system. The point is that though the economic effects of expectations (on output, unemployment, cycles, etc.) were highlighted in the theory of Keynes (and even in those of Marx and Mises), the models vulgarizing the theory of Keynes completely have forgotten about it. Moreover, some modern theories have regarded public beliefs (in other words, expectations) as a power that deprives economic policy of its instruments, causing further delays in making deliberate efforts by economic policy to influence these public beliefs. In our view, both the emergence of symbolic economic policies mentioned above and the rise of heterodoxy are on the same level, since certain governments, not having much leeway, can only operate through giving signals to markets. Although it is not the time to formulate ultimate and eternal generalised statements, it may perhaps be stated that symbolic economic policies, as part of the intersection of heterodox and unorthodox interventions, cut away from instrumental policies, can make some room for manoeuvring available as a last resort for economic policies. Our theoretical framework will be filled with some episodes from the last few years of the economic policy of Hungary. Of course, it is not suggested that the Hungarian case analysed here is the only example of symbolic economic policies. The possibility of symbolic economic policies follows from the theoretical foundations of new classical macroeconomics (as it will be detailed below), however, it cannot be judged at this point how widely this set of tools will be utilized later – the set of tools that is suggested here on theoretical grounds only as a mere option.

Wicksell, Keynes, and the New Neoclassical Synthesis: What Can We Learn for Monetary Policy?

The New Neoclassical Synthesis (NNS) provides the established macroeconomic foundation for monetary policy. The Great Recession has, however, unveiled a number of unresolved issues. Prominent scholars have stressed the connections of the NNS with the founders of macroeconomic thought, Wicksell and Keynes. Our main contention is that the NNS fails to consider, and learn from, the hallmark of Wicksell's and Keynes's approaches to business cycles, namely investment–saving imbalances (ISI). Systematic studies of macroeconomic instability, and notably the Great Recession, give prominence to this phenomenon. Drawing on Wicksell's and Keynes's insights, this paper provides a framework to deal with ISI and monetary policy according to modern theoretical standards and techniques (e.g. agents seek to optimize intertemporally and markets clear). Section 2 of the paper clarifies some basic theoretical issues underlying the NNS vis‐à‐vis Wicksell and Keynes. Section 3 presents a dynamic model whereby it is possible to assess some basic issues concerning the macroeconomics of ISI that are at variance with the NNS. Section 4 shows how system stabilization can be achieved by means of a ‘Wicksellian’ interest‐rate rule, which, however, displays dynamic features and conditions that differ from the current NNS consensus. Central banks may thus learn that ISI deserve careful symptom monitoring, and that they require greater attention to the dynamic stability of choices of policy reaction functions.

Special Issue: Micro-foundations of macroeconomics: how important are they?

Editorial to the Special Issue - The Department of Applied Economics V of the University of the Basque Country (UPV/EHU) and the Cambridge Centre for Economic and Public Policy, Department of Land Economy of the University of Cambridge, organized the 10th International Conference entitled Developments in Economic Theory and Policy. The Conference took place in Bilbao (Spain) on 27 and 28 June 2013. In this issue of the European Journal of Economics and Economic Policies: Intervention (EJEEP), the papers of the special session, ‘Micro-foundations of macroeconomics: how important are they?’ are published.

A Note on Price Asymmetry Using a Monetary Model

In this paper we present a macroeconomic foundation of downward money price inflexibility based on classical Monetary Economics. We show that under the principle of risk aversion and the neutral money axiom, our model derives an endogenous asymmetric price response as prices adjust more rapidly when they go upward than downward. This asymmetry does not disappear; on the contrary, it is increasing in time.

The future of US global power: delusions of decline

US Power - Past and Prologue Dimensions of US Power, Decline and Overstretch Microeconomic Foundations - Innovation, Productivity, and Competitiveness Macroeconomic Foundations - Global Imbalances and the Dollar Human Security: US Leadership on Counter-Proliferation Global Public Goods and East Asia China's Challenge The Fiscal Deficit The Politics of Hegemony Conclusion

The Philosophical Foundations of Chapter 24 of TGT: Is Mankind's Destiny the Essence of Keynes's Evolutionary Vision?

It is difficult to advance a point beyond what Keynes himself commented about his own vision in General Theory of Employment, Interest and Money in 1936 (hereafter TGT) in its Chapter 24. It is also difficult to express a deeper thought than what Skidelsky wrote about Chapter 24 of TGT (cf. Skidelsky, 1997). The purpose of this article is to identify whether Chapter 24 of TGT is the gist of Keynes’ legacy, having set the foundations of macroeconomics in the previous 23 Chapters. Relevant topics included in Chapter 24 are the consequences of full employment, the fate of income distribution, the future of overall wealth, the socialization of investment, saving, expectations, the role of the State in economies, the future of financial markets and the interaction between economics and other disciplines. Indeed this Chapter displays Keynes’ genius as a social philosopher, following the tradition of Economics Possibilities for our Grandchildren (1930). In Chapter 24 he was taking a glance at his product as did Phillip II when he was observing the construction of his castle El Escorial in XVII Spain. Within his vision, is this piece of work a justification of capitalism? Keynes sees the State as both the spender and the employer of last resort, thereby proposing a new role for the government (Skidelsky, 1998). He also suggests a new role for the private sector and reconsiders the interrelation between the two sectors. He is fully optimistic about this issue, which he considers as evolutionary. In addition, Keynes blurs the distinction between economics and sociology, advancing new interdisciplinary hints in his thinking. Keynes is also concerned on the epistemological role of assumptions in order to obtain defensible conclusions. Thereafter the British economist proposes new methods. He was a neo-realist and was against the inductive method. In addition, it can be stated that TGT is grounded on new psychological laws and motivations, that is, on a new vision of humankind, especially the analyzed chapter. His topics are the bypassing of Classical Economics; the destiny of macroeconomics in both theoretical and policy terms, highlighting new roles for interest rates; savers and rentiers; and the relevance of the concepts of ideas, interests and power. In all these respects Keynes is once again far ahead of his time. Finally a debatable topic dealt with by Keynes in Chapter 24 of TGT is socialisation of investment. This is in words of Skidelsky, a shift in the balance of social power. Keynes is thus in Chapter 24 of TGT a visionary and an idealist, a reformer, and certainly a trans-generational thinker. When he talks about the passion of thriftiness and the setting of reasonable financial rewards arising from financial instruments he is advancing explications for financial crises in terms of speculation. The open conclusion is that Chapter 24 contains the gist of Keynes’ mature philosophical thinking and legacy, confirming that for him attitudes are one of the most relevant issues in life. In addition, he considers that both social and psychological elements are necessary for a thorough understanding of economic issues and their consequences, such as peace and happiness. Section 1 is an introduction. Section 2 is both a literature review and a summary of Keynes’ general philosophical insights. Section 3 is an analysis of Chapter 24 of TGT in the specific fields of Epistemology, Ethics, Ontology, and Political and Social Philosophy. Section 4 is a conclusion. References are listed at the end of the article.

From Contagion to Incoherence towards a Model of the Unfolding Eurozone Crisis

Based on an account of the macroeconomic foundations and political economy underpinning European Monetary Union, this paper presents a simple dynamic model of the mutual reinforcement feedback between (a) the Eurozone's contagion dynamic and (b) the policy responses of the European Union, including the creation of new institutions (e.g. the EFSF and ESM), the signing of new treaties (e.g. the Fiscal Past) and, of course, the novel' policies of existing institutions (e.g. the ECB). Acknowledgments: I wish to thank James K. Galbraith as well as participants at the 2013 Ayres Scholar Lecture, organised by the Association for Evolutionary Economics in the context of the 2013 ASSA Conference, San Diego, where an earlier version of this paper was presented.

A Macroeconomic Foundation for the Equilibrium Term Structure of Interest Rates

This paper explores the term structure of interest rates implied by a stochastic endogenous growth model with imperfect price adjustment. The production and pricesetting decisions of rms drive low-frequency movements in growth and ination rates that are negatively related. With recursive preferences, these growth and ination dynamics are crucial for rationalizing key stylized facts in bond markets. When calibrated to macroeconomic data, the model quantitatively explains the means and volatilities of nominal bond yields and the failure of the expectations hypothesis.

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Planned Economic Contraction: The Emerging Case for Degrowth

This article outlines the sociological, ecological, and economic foundations of a macroeconomics ‘beyond growth,’ focusing on the idea of degrowth. Degrowth opposes conventional growth economics on the grounds that growth in the highly developed nations has become socially counter-productive, ecologically unsustainable, and uneconomic. Stagnating energy supplies also suggest an imminent ‘end of growth’ (Heinberg, 2011). In response to growth economics, degrowth scholars call for a politico-economic policy of planned economic contraction, an approach which has been broadly defined as ‘an equitable downscaling of production and consumption that increases human well-being and enhances ecological conditions’ (Schneider et al, 2010, p. 512). After defining growth economics and outlining the emerging case for degrowth, this article considers the feasibility of a macroeconomics beyond growth and sketches an outline of what such a macroeconomics might look like as a politico-economic program.

Learning as a Rational Foundation for Macroeconomics and Finance

Expectations play a central role in modern macroeconomics. The econometric learning approach, in line with the cognitive consistency principle, models agents as forming expectations by estimating and updating subjective forecasting models in real time. This approach provides a stability test for RE equilibria and a selection criterion in models with multiple equilibria. Further features of learning, such as discounting of older data, use of misspecified models, or heterogeneous choice by agents between competing models, generate novel learning dynamics. Empirical applications are reviewed and the roles of the planning horizon and structural knowledge are discussed. We develop several applications of learning to macroeconomic policy: the scope of Ricardian equivalence, appropriate specification of interest-rate rules, implementation of price-level targeting to achieve learning-stability of the optimal RE equilibrium and whether under learning price-level targeting can rule out the deflation trap at the zero-lower-bound.

Learning as a Rational Foundation for Macroeconomics and Finance

Learning as a Rational Foundation for Macroeconomics and Finance

Strategic Firm Response to Developing Economy Challenges

Michael Porter describes economic development as a continuous process of upgradation of the competitive position of the country. During the economic development process the macroeconomic foundation of the economy and consequently the business environment of the firm experience paradigm shifts on a continuous basis. This results in newer challenges to the firm at every stage. This article attempts to capture the strategic shifts that firms are required to make in each of the stages to gain and sustain competitive advantage. After describing the stages of economic development—factor-driven economy, investment-driven economy, innovation-driven economy and wealth-driven economy—and classifying the firm in terms of its external linkages, the article explores the strategic response that a firm would need to make under different situations. The article argues that the strategic response would depend on the type of the firm, its resource endowments and the stage of the economy. The responses are mapped through four dimensions: ( i) Managing the Supply-side, ( ii) Managing the Demand-side, ( iii) Managing the Conversion Process and ( iv) Changing the Business Model. After describing each, the article analyses a set of cases to explore deeper insights about the relationships between the stages of economic development, pre-conditions and the choice of strategies.