post-Keynesian Literature Research Articles

Macroeconomic policy regimes and demand and growth regimes in emerging market economies: the case of Argentina

Demand and growth regimes (DGR) and macroeconomic policy regimes (MPR) frameworks have assumed prominence within the post-Keynesian literature. However, most studies based on these conceptual frameworks have focused on developed economies. The main contribution of this paper is to provide a post-Keynesian analysis of the DGR and MPR of an emerging capitalist economy, Argentina, in the period between 2002 and 2019. By providing a novel periodization of the Argentine macroeconomic development, the results show a more precise characterization of the latter, thus allowing a better understanding of economic policy and its results in terms of aggregate demand and growth. In particular, it is possible to observe the MPR and DGR transition between 2002 and 2015, as well as an abrupt change after 2016.

Consumption Emulation and Demand Regimes: An Inclusive Modeling Approach

ABSTRACT Personal income distributions robustly follow a two-class structure, with an exponential bulk of labour income accruing to the lower 95 - 99 % population share and an upper Pareto tail of the 1 - 5% richest, where capital income is concentrated. The implications of this regularity for macroeconomic outcomes, especially aggregate consumption, are not yet fully understood, though. We introduce this two-class structure into a Post-Keynesian consumption model with workers and capitalists corresponding to the two classes within the personal distribution. Agents consume according to idiosyncratic and social motives. Status consumption is microfounded within a perception network that replicates empirically observed inequality and social self-perceptions. Our findings indicate that the non-market interactions in perception networks are potentially highly relevant for aggregate outcomes and that they can shed some light on recent puzzles in the Post-Keynesian literature on growth regimes. In particular, we show how network segregation can explain differences in the degree of ‘wage-ledness’ of aggregate consumption. Aggregate representations of consumption might thus be misleading. Empirical studies should therefore take the regularities both in the income distribution as well as social network topologies into account.

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.

Post-Keynesian Economics: New Foundations by Marc Lavoie Chapter 3: Theory of the firm

ABSTRACT This article represents a systematic presentation of the post-Keynesian alternative to mainstream economic theory. It places observation of reality at the centre of the investigation and derives — through an in-depth examination of post-Keynesian literature — an analytical model capable of interpreting the behaviour of firms in a capitalistic market economy. The chapter on which this article focuses is in a book covering the core elements of this heterodox model, which creates a coherent framework for investigating and interpreting the workings of an economic system that approximates reality.

Post-Keynesian Economics: New Foundations, by Marc Lavoie Chapter 6: Accumulation and Capacity

ABSTRACT This article reviews the chapter on growth and distribution of the 2022 edition of the book Post-Keynesian Economics: New Foundations by Marc Lavoie. The review goes through most of the chapter’s main topics, including the main classes of growth and distribution models along post-Keynesian lines and the criticism and extensions of these models. It stresses the macroeconomic paradoxes that result from the relation between aggregate demand and either income distribution or debt dynamics in these models. The review also addresses the new additions to the chapter, among which the recent contributions on the controversy on the convergence towards the normal capacity utilization rate and the non-capacity creating autonomous demand growth models, and Lavoie’s new section on wealth and personal income distribution. At last, the review discusses three issues raised by the chapter’s reading: the relation between realism and complexity for a model’s calibration, the consequences of abstracting the financial side of growth models, and how we address financial issues in growth and stock-flow consistent (SFC) models. The chapter reviewed is balanced and constructive; it critically informs the reader and provides a good map of the post-Keynesian literature on growth and distribution, addressing the canons while bringing novelty.

Why Has Labor Productivity Slowed Down in the Era of Financialization?: Insights from the Post-Keynesians for the European Union Countries

This article employs a panel data econometric approach in order to empirically ascertain the role of the phenomenon of financialization in the deceleration of labor productivity in the European Union countries from 1980 to 2019. During that time, the European Union countries suffered a huge structural transformation based on Reaganomics and Thatcherism and their financial systems have experienced strong liberalization and deregulation, which have contributed to poor evolution of labor productivity and have revived fears around a new “secular stagnation” in the era of financialization. Grounded in post-Keynesian literature, the slowdown of labor productivity in the majority of developed economies in the last decades cannot be separated from the phenomenon of financialization, which has occurred through four different channels, namely, weak economic performance, the decline in the labor income share, the increase in personal income inequality, and the strengthening of the degree of financialization and its corresponding harmful effects on innovation, research and development, technological progress, and productive investments performed by nonfinancial corporations. Our findings confirm that lagged labor productivity, economic performance, and labor income share have a positive impact on labor productivity in the European Union countries, while personal income inequality and the degree of financialization impact it negatively. Our findings also reveal that labor productivity in the European Union countries in the last decades would have grown more if there had been a stronger economic performance, a smaller decline (or even a rise) of the labor income share, a smaller increase (or even a decrease) of personal income inequality, and a weakening of the degree of financialization. JEL Classification: C23, E12, E24, and E44

Financialization and endogenous technological change: A post-Kaleckian perspective

In post-Keynesian literature, Hein (2012b) was the first to incorporate financialization as an influential positive determinant of the rate of technological change. However, financialization is more like a two-edged sword which can affect technological change negatively as well. We capture both the positive as well as the negative effect of financialization on technological change which encapsulates the possibility of multiple equilibria. In analyzing the long run of the model, we endogenize the financialization parameter as well and get richer dynamics than Hein (2012b). We show that under certain circumstances, a higher speed of diffusion of technological innovation, more regulated financial markets, and higher intra-class competition among firms are desirable for stabilizing the economy. Finally, we provide some policy prescriptions for the same.

Financialisation and the Portuguese private consumption: two contradictory effects?

ABSTRACT This paper makes an empirical evaluation of the relationship between financialisation and the Portuguese private consumption by performing a time series econometric analysis from the first quarter of 1996 to the third quarter of 2019. Framed within the post-Keynesian literature, financialisation has two contradictory effects on private consumption. The first one corresponds to the fall in the households’ labour income, which favours a deceleration of private consumption. The second one corresponds to the increase of households’ debt and the increase of households’ financial and housing wealth, which favours an acceleration of private consumption. The global net effect of financialisation tends to be positive because the beneficial wealth effect suppresses the harmful income effect. We estimated a private consumption equation that includes four control variables (unemployment rate, inflation rate, short-term interest rate and long-term interest rate) and three variables linked to financialisation (labour income, net financial wealth and housing wealth). Our results confirm that labour income, net financial wealth and housing wealth are positive determinants of Portuguese private consumption. Our results also show that financialisation has represented an important driver of Portuguese private consumption, particularly due to the beneficial effects of net financial wealth.

Heterogeneous unit labor costs and profit margins in an economy with vintage capital: an amended neo-Kaleckian model

Post-Keynesian literature studying the impact of functional income distribution on economic activity and growth focuses on indirect demand effects (i.e., the consequences of real wage changes on aggregate demand components). The purpose of this article is to explore two points neglected by this literature. First, it ignores the direct supply effects corresponding to the impact of real wage changes on firms’ current profitability. Second, it does not explicitly take into account capital heterogeneity as a consequence of embodied technical progress. We, therefore, analyze the properties of a neo-Kaleckian model that includes both labor productivity differences between firms and the necessary condition of positive profits to engage in production. We show that the positive impact of real-wage increases on effective demand forces some firms to stop production because they become unprofitable. Moreover, the increase in effective demand can be impeded by the decrease in the capacity of profitable firms. Therefore, a recovery of economic activity through wage increases reaches its limits when profitable firms are at full capacity. The model also highlights the importance of technical competition and its role in firms’ behavior regarding capital replacement.

Ulysses’ journey home to Ithaca: a new metaphor for understanding the General Theory

Abstract This paper argues that in order to remedy the lack of alternative methods in current macroeconomics it is necessary to clarify the ontology of Keynes’s General Theory. One of the reasons why Keynes lost his generality battle is that he left many gaping holes in the ‘correct’ articulation of his research programme—especially in terms of the specification of hard-core ‘cosmological’ beliefs concerning stability, value and aggregate behaviour—yet to be filled by the post-Keynesian literature. In order to start filling the gaps, this paper proposes a new agenda called ‘The General Theory 4.0’ based on the new ‘Ulysses’ journey’ metaphor, which, it shows, is better than alternative ones, such as Farmer’s ‘windy boat’ and Akerlof and Shiller’s ‘rollercoaster’, for improving understanding of Keynes’s book.

Financialization and Neoliberalism and the Fall in the Labor Share: A Panel Data Econometric Analysis for the European Union Countries

This paper conducts an empirical analysis of the relationship between financialization and neoliberalism and the labor share using panel data composed of twenty-seven European Union countries over nineteen years (from 1995 to 2013). Adopting a Kaleckian perspective, framed in the post-Keynesian literature, financialization and neoliberalism exert a negative influence on the labor share through three different channels: the change in the sectorial composition of economies (the increasing importance of financial activity and the decreasing importance of general government activity), the proliferation of shareholder value orientation, and the deterioration of general workers’ bargaining power. We estimate a labor share equation with the traditional variables (lagged labor share, technological progress, globalization, education, and output growth) and four further measures of financialization and neoliberalism (financial activity, general government activity, shareholder value orientation, and the trade union density rate). The findings show a disruptive relationship between financialization and neoliberalism and the labor share in European Union countries, mainly through the channels of general government activity and shareholder value orientation. It is also found that financialization and neoliberalism have contributed to a fall in the labor share in European Union countries. The technological progress was the main driver of the fall in the labor share in European Union countries, while the output growth was the main supporter. This suggests that the trend of decline in the labor share could intensify in the future taking into account the fears of potential secular stagnation in the current era of financialization and neoliberalism. JEL Classification: C23, D33, E25, E44

The financialization of Quebec student debt and the theory of monetary circuit: a case for a reinterpretation?

This paper examines the increase in student bank indebtedness in Quebec over the last three decades. The increase in this form of indebtedness is compared with the more general rise of household and consumer indebtedness under financialized capitalism. The banks’ origin of student debt through Quebec’s state-subsidized loans programs, L’Aide financière aux études (AFE), is identified through an institutional history of this program. I then refer to post-Keynesian and circuitist literature to identify the broader monetary circuit with which student debt is embedded. The paper presents original data on outstanding student loans, interest payments, and the public and private actors managing student indebtedness. It concludes with an overview of Quebec student indebtedness related to private credit products.

Vicarelli, Keynes, and the unstable nexus between investment, liquidity, and finance

ABSTRACTThe goal of this article is to reconstruct Keynes’s vision of the unstable nexus between investment, liquidity and finance, as set out by the Italian economist Fausto Vicarelli (1936–1986). As argued in the article, one of Vicarelli’s main contributions consists of explaining the inherent instability of financially sophisticated capitalist economies in terms of the interaction (and double dissociation) between investment, saving, and stock-holding decisions, within a Keynesian framework characterized by the presence of fundamental uncertainty. While Vicarelli’s interpretation of Keynes is best understood in the context of the post-Keynesian literature, its relevance goes beyond that, as its sheds light on current issues related to the post-2008 financial crisis and its policy implications.

Inequality, financialization, and economic decline

ABSTRACTThe objective of this article is to argue that the labor productivity slowdown experienced in recent years by several advanced countries can be explained, following a Kaldorian-Classical approach, by a weak gross domestic product (GDP) performance and by a decline in the wage share. Moreover, drawing inspiration from recent post Keynesian literature, the authors identify the ongoing worsening in income equality and the increase in the degree of financialization as other major explanatory factors of sluggish productivity. The article will provide a brief literature review concerning nonmainstream attempts to endogenize labor productivity, beginning from the famous Verdoorn-Kaldor law (Verdoorn, 1949) and the Kaldor technical progress function (Kaldor, 1961) and including Sylos Labini’s productivity equation (Sylos Labini, 1984, 1999). The authors will then discuss how labor flexibility and shareholder value orientation, one of the main aspects of financialization, can negatively affect equality and labor productivity. Finally, they propose an extended version of the Sylos Labini’s equation, where productivity growth is claimed to depend positively on GDP rate of growth and the wage share, and negatively on income inequality and financialization. They submit to empirical scrutiny their extended productivity equation; the results of their estimations provide support to their theoretical argument.

Estimating Keynesian models of business fluctuations using Bayesian Maximum Likelihood

An empirical approach to model estimation and evaluation based on Bayesian Maximum Likelihood is introduced to the post-Keynesian literature. To illustrate the method, it is applied to a simple neo-Kaleckian model of euro area business cycle fluctuations including endogenous fiscal and monetary policy as well as endogenous wage formation. The estimated model parameters are broadly in line with the literature. To evaluate the empirical performance, we compare its marginal likelihoods and impulse-response functions to those of a corresponding Bayesian vector autoregression model after relaxing the theory-implied cross-coefficient restrictions as well as a benchmark dynamic stochastic general equilibrium model. The results suggest that both outperform the neo-Kaleckian model. In particular, we identify misspecification problems in the fiscal and monetary policy transmission mechanisms. Future research should be directed at improving the empirical fit of models in the post-Keynesian tradition and the current paper provides useful tools for doing so.

Keynes’ Unscientific Theory of Consumption Function and Its False Policy Implication for the Multiplier Effect: A Review of Disaggregated Evidence

<p><em>The assumption that the Marginal Propensity to Consume (MPC) and the resulting multiplier are fairly stable at the aggregate level irrespective of the time frame, commonly articulated in some post-Keynesian literature and introductory macroeconomic texts and universally used as the building block of fiscal policy decisions, are false concepts. In this enquiry, we examine the robustness of this proposition using disaggregated disposable income to demonstrate that neo-Keynesians’ generalization that consumers in different income brackets would react similarly to a change in income is refuted by the weight of historical evidence. We derive estimates of the MPC in the short-run and the long-run using recent data from the US Bureau of Economic Analysis (BEA). We show that the whole is not the sum of its parts when it comes to the MPC. This insight should give teachers a more accurate description of short-run consumption behavior. Our objective is to extend students’ understanding of the complexity of the economy and reveal that there are many intricate mysteries that are yet to be expounded (Note 1).</em></p>

Keynes at the periphery: Currency hierarchy and challenges for economic policy in emerging economies

ABSTRACTWhile the post Keynesian literature offers a rather clear concept for growth-oriented policies, it is necessary to adapt them for peripheral emerging economies. We base our analysis of an appropriate Keynesian policy mix for these countries on the concept of currency hierarchy, where the currencies of peripheral emerging economies have a lower liquidity premium than the currencies of advanced economies. The international asymmetry related to the currency hierarchy, amplified by financial globalization, imposes major constraints to the adoption of Keynesian policies for these economies. Under these conditions, we argue that domestic economic policy coordination should lay a major focus on a low policy rate and, especially, a competitive exchange rate for obtaining, at least, a balanced current account, in order to prevent capital flows boom-bust-cycles with subsequent financial crises. We conclude that it is a rather ambitious and long-term goal to climb up the currency hierarchy, especially under the current condition of financial globalization.

Secular stagnation and progressive economic policy alternatives

This paper summarizes two main findings in the post-Keynesian literature regarding the linkages between financialization, income distribution, accumulation and productivity. First, at the core of secular stagnation lies the missing link between profits and investment. Second, 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.

The legal theory of finance and the financial instability hypothesis: Convergences and possible integration

ABSTRACTThis article presents the legal theory of finance (LTF) and compares it with the financial instability hypothesis (FIH), identifying points of convergence and divergence. The study aims to contribute to the literature by connecting these theories and provides the following main conclusions. First, the LTF incorporates aspects of the FIH, as the theories share several key elements, particularly the presence of fundamental uncertainty, the constraint of liquidity, and the necessity for governments to act as lenders of last resort. Second, the liquidity concept used in the LTF can be better comprehended with the use of Keynesian and post Keynesian literature on the topic. Third, the LTF aims to advance and update certain aspects of Minsky’s theory, particularly with regard to the globalization of markets, power relations, and the interdependencies of the political economy of finance. The study concludes that the theories are more complementary than divergent and future studies should create an analytical framework that integrates the theories’ most insightful aspects.

Desigualdade na oferta de crédito regional a pessoas jurídicas: uma análise em painel para o período 2000-2011

Resumo O objetivo deste artigo é apresentar um estudo empírico sobre o comportamento do crédito bancário para pessoa jurídica em termos regionais no período 2000-2011 utilizando-se um modelo de dados em painel. Com as estatísticas do banco de dados Estatísticas Bancárias por Municípios - Estban e doSistema Gerenciador de Séries Temporais do Banco Central do Brasil, foi possível construir as variáveis do modelo desenvolvido para explicar os determinantes do crédito às pessoas jurídicas por regiões. Apoiado na literatura pós-keynesiana, os resultados do modelo econométrico estimado comparando regiões apontam para a existência de um paradoxo financeiro da eficiência social, ou seja, observa-se este paradoxo quando instituições financeiras registram maior preferência pela liquidez indicando que o processo de geração de contratações de meios de produção e alocação de renda, que deveria ser iniciado pela disponibilidade de crédito, não é ratificado. Tal fato acaba por criar prerrogativas para inserção de políticas públicas para ocupar o hiato financeiro e promover a expansão econômica regional.