post-Keynesian Theory Research Articles

Формирование предложения денег в экономике России

The question of optimal monetary policy is one of the most controversial among economists in different countries of the world. The answer to this is largely determined by the way money is formed in the economy. According to modern macroeconomic concepts, money supply can be influenced by factors other than monetary policy. This article discusses the main theoretical approaches to determining the mechanisms of formation of the money supply. The main attention is paid to the post-Keynesian theory of endogenous money supply, within which the accommodation and structuralist approaches dominate. Both approaches are based on the premise that the money supply in the country is affected by changes in bank loans. However, they differ in the degree to which the monetary regulator satisfies the banks’ need for loans: full (accommodation) and partial (structuralism). The main source of money supply growth in the modern world is the credit channel, which is considered key from the standpoint of post-Keynesianism, but considering the Russian economy in retrospect, one cannot help but note two more important sources, such as the currency channel, which was of great importance in the 2000s, and the fiscal channel, which currently also plays an important role in changes in the money supply. Since 2013, the Central Bank has been actively using such a regulatory instrument as the key interest rate in its monetary policy, which is consistent with the position of post-Keynesianism. Using the conducted theoretical review, as well as an analysis of the current state of the Russian money market and monetary policy, it is concluded that there are prerequisites for the endogeneity of the Russian money supply, which provides grounds for further analysis of the cause-and-effect relationships of key macroeconomic indicators using econometric models.

The ECB’s Monetary Policy Review: A Post-Keynesian Twist?

ABSTRACT In 2021, the European Central Bank (ECB) decided to adjust its monetary policy strategy. Three major changes were initiated: the main objective was reformulated, but also the structure of the institution’s analyses of the economic situation and how it will communicate in the future was adjusted. Can these changes be considered as being based on a Post-Keynesian view or do they still follow the ‘New Consensus’ model largely based on standard neo-classical theory? Our main conclusion will be that the adjustments made by the ECB are not necessarily based on Post-Keynesian analysis. To justify this statement, we have developed what we consider the basic elements of a Post-Keynesian monetary policy, then we analysed what a Post-Keynesian monetary rule could be as well as the monetary policy instruments used by the ECB. Subsequently we looked at the strategy changes made by the ECB from a Post-Keynesian point of view and concluded that some of these changes can be considered as being close to Post-Keynesian theory, but other facts explain why the ECB’s monetary policy is still close to the ‘New Consensus’ model.

Keynes’ Finance Circuit model on banks in Africa

AbstractSince the publication of Keynes General Theory in 1936 when Keynes developed an original Finance Circuit model which was subsequently enriched by the post-Keynesian theory of endogenous money supply, no study has undertaken Keynes Finance Circuit model complete causality tests. The present paper breaks new ground and aims at filling the above lacuna by employing Granger non-causality test for heterogeneous panel data models to investigate the above model based on a sample of 32 African countries, for the period from 1990 to 2021. Our results lend support to the complete Keynes Finance Circuit model in the short run. In the long run, all causalities are vindicated except the causal relationship running from economic growth to savings which appears insignificant. In terms of policy implication, we are encouraging policymakers to design policies that will stimulate economic growth within a post-Keynesian endogenous money supply framework.

Heterogeneity in household consumption behavior: The role of inequality and financial instability

We analyze, using the micro data of the Household Financial Survey (HFS) of the Bank of Spain, the consumption consequences of the household balance sheets and debt accumulation during the real estate bubble of 2002–2005, the Great Recession (2008–2011) and the subsequent economic recovery phase (2014–2017). Using quantile regression models, we find heterogeneity in household consumption behavior with respect to income and net worth levels, and in response to changes in household net worth in the last two periods. During the considered real estate bubble period, this heterogeneity in behavior is diminished, and only occurs in relation to the level of net wealth, in line with Hyman Minsky’s Paradox of Tranquility. These findings favor the post-Keynesian theory on consumption. The greater inequality leads to a higher propensity of certain households to consume in response to changes in housing and financial net worth. This is compatible with the relative income hypothesis extended in expenditure cascades models. Otherwise, households will be willing to take on more risk during economic boom periods associated with a real estate bubble, which translates into debt-financed consumption that virtually makes such heterogeneity practically disappear.

Fiscal and monetary policy for difficult times: MMT solutions

This article considers the current economic situation from the lens of modern money theory (MMT) and expresses a policy response rooted in post-Keynesian theory and empirical data for the US and the euro area. First, MMT supports targeted deficit spending to promote production. Increasing domestic supply will reduce the prices of goods and energy. Second, MMT advocates for reducing the interest rate to make production more profitable. Third, MMT pushes for a job guarantee and increased unionization to alleviate wage pressure. Fourth, MMT believes in rationing, postponed consumption, patriotic saving, and regulation. Increasing interest rates and limiting government deficit spending are not the only ways to address the post-COVID-19 period. We show there are better ways to restore price stability.

Bringing Household Finance Back In: House Prices and the Missing Macroeconomics of Comparative Political Economy

This article makes a key contribution to the comparative political economy literature by accounting for the macroeconomic role of household finance. Based on post-Keynesian theories of finance and the financialization literature, we place house prices and mortgage credit squarely at the center of the macroeconomy, as speculative house price cycles can facilitate homeowner consumption via the use of equity release mortgages. Through an econometric evaluation of eighteen advanced economies from 1980 to 2019, we demonstrate that household debt is determined by house price inflation, and that rising household debt contributes to GDP growth, while business debt has negative growth effects. These results are consistent across countries with different growth models and financial systems. This suggests that the varieties of capitalism's focus on corporate finance is misplaced and that the growth models approach needs a theory of house prices, mortgage credit, and financial cycles to adequately conceptualize how debt-driven growth operates across advanced economies.

THE FUTURE OF POST-KEYNESIAN ECONOMICS: Post-Keynesian Economics at 50

This article discusses the future of post-Keynesian economics by considering three angles: i) the future of post-Keynesian economics as an institution or as a school of thougth; ii) the future of post-Keynesian theory; and finally, iii) the future of post-Keynesian within the profession. My conclusion is fairly positive overall, although the place of post-Keynesian economics within the profession is certainly not enviable.

A Keynesian–Minskian perspective on the transformation of industrial into financial capitalism

During the past decades, industrial capitalism has been transformed into something which has been dubbed ‘Casino Capitalism’, ‘Turbo Capitalism’ or ‘Money Manager Capitalism’ by different authors: financial accumulation has outpaced real accumulation. This process of ‘financialisation’ has been discussed quite intensively in the literature with respect to its historical determinants and its macroeconomic effects, yet it has not been studied thoroughly whether the shift from the production and allocation of commodities and services towards the origination and distribution of loans and assets as the main activity of non-financial companies challenges our theoretical principles and, therefore, demands a new macroeconomic approach. The objective of this paper is to argue in a preliminary way that financialisation is not merely to be understood as the relative growth of the financial sector based on a deepening of financial intermediation but as a structural transformation of the core business of non-financial firms. This is based on an extended post-Keynesian theory of monetary production and an application of Minskian short- and long-term instability cycles.

A Heterodox Approach to Masstige: Brand Fetishism, Corporate Pricing, and Rules of Consumer Choice

Masstige, or luxury for the masses, is a phenomenon that requires a heterodox economic approach based on Original Institutional Economics view of corporate power combined with Marxian concept of brand fetishism and post-Keynesian theories of pricing and consumer choice. The attitude toward luxury in classical works on political economy is briefly outlined. By applying the post-Keynesian theory of oligopolistic pricing, we show how the power of luxury brands enables high profits of luxury conglomerates. We use the post-Keynesian theory of consumer choice to differentiate between various types of masstige buyers. JEL Classification: B52, D11, D21, D43

Are Firm Markups Boosting Inflation? A Post-Keynesian Institutionalist Approach to Markup Inflation in Select Industrialized Countries

ABSTRACT Starting in 2021, the current inflation process has spurred plenty of discussion in academic and policy circles. This paper studies the relationship between firms’ markups and inflation during the 2021–22 inflation surge in several industrialized countries. It begins by explaining markup inflation and its critics in the context of the current debate over the sources of inflation. Then it reviews the characteristics of markup inflation within the post-Keynesian theory of markup pricing and complementing it with the Institutionalist approach to inflation that distinguishes between basic inflationary pressures and propagation mechanisms. The second part assesses markup inflation for several industrialized countries using descriptive statistics and conventional econometrics. The main contribution falls in empirically estimating markups considering the contribution of material cost and controlling for changes in capacity utilization over time. It concludes that there is some evidence pointing at markup inflation and, importantly, the existence of markup inflation leads to rejecting any wage-price spiral.

Geoff Harcourt and Economic Policy: Horses for Courses?

AbstractGeoff Harcourt was a renowned economist and political activist who made a significant contribution to public policy, particularly in his home country of Australia. As a leading contributor to post-Keynesian theory, he believed a capitalist economy would not create full employment without significant policy intervention. On the labour market, he devised an approach to wage bargaining that integrated fairness with productivity growth in the context of Australia’s unique institutions of conciliation and arbitration. On tariff protection, he was agnostic, preferring a more proactive industry policy grounded in post-Keynesian principles and drawing on his early work on accounting theory and practice. His economic advice to the Australian Labor Party (ALP) Committee of Inquiry in 1979 refocused policy debate around the role of incomes policy, which became the centrepiece of the Hawke-Keating Government’s Accord with the trade union movement.

Modern post-Keynesian approaches: continuities and ruptures with monetary circuit theory

Stock-flow-consistent models (SFC) and modern monetary theory (MMT) are growing in popularity. Both are part of post-Keynesian theory and provide it with a modeling tool for the former and political proposals for the latter. However, these new modern post-Keynesian approaches share features with monetary circuit theory: their accounting framework, the hierarchy of agents and economic flows, and the importance of the Keynes’s finance motive. This article examined the fundamental elements of these new approaches to establish their links with monetary circuit theory.

Can money supply endogeneity influence bank stock returns? A case study of South Asian economies.

This study tests the Post-Keynesian theory regarding bank stock returns and money supply endogeneity in the context of South Asian countries. This study uses panel data set from different sources over twenty-eight (28) years. The research uses different econometric techniques before switching to the generalized method of moments (GMM). The empirical results indicate a significant positive effect of net interest rate margins on bank loans in South Asian countries, whereas a positive relationship exists between foreign to local interest rates and the money supply. The findings depict that positive associations exist between inflation and money supply of banks, and between the money supply and bank stock returns. More specifically, the GMM results show that the money supply has positively affected the stock prices of banks suggesting strong policies for the stakeholders of these economies for the sake of economic growth and sustainable development.

Uncertainty and public expenditure: An analysis from a model of interactive variables

In accordance with the post-Keynesian theory, the purpose of this study was to determine how public spending influences the impact of banking uncertainty assessed by banks' liquidity preference – on the economic performance of Brazilian microregions. For this purpose, a data panel model with interactive variables was used for the period from 2003 to 2014. As expenditure variables, municipal aggregate expenditure on education and transportation was used. The results indicate that public expenditures are relevant to determine the level of economic activity in a direct way, and indirectly by reducing the adverse impact of bank uncertainty on the economic performance of microregions. In addition, spending on education proved to be more effective in determining output than transport spending.

The ecological crisis and post-Keynesian economics – bridging the gap?

This paper investigates whether post-Keynesian economics is well-equipped to address the ecological crisis we face today. The major crisis of our times has three interrelated dimensions: ecological overshoot, socio-economic inequality and a growth imperative built into the economic system. We argue that the main building blocks of post-Keynesian thought – in contrast to neoclassical approaches – are well-placed for addressing the ecological crisis if reconfigured accordingly, and that such a development will likely be very fruitful. Yet, we identify the growth effects of reducing inequality, the capitalist growth imperative and political power from wealth concentration and incumbent industries as the main contradictions between post-Keynesian theory and fossil phase-out. While the first of these may be overcome with adequate industrial and regulatory policy, the second would require a fundamental transformation. This, in turn, is impeded by the third. We argue that more attention should be paid to resolving the residual contradictions and indicate advances in the broader Political Economy and Ecological Economics literature that may serve as a starting point, in particular focusing on human needs.

Saving and Investment in the Twenty-First Century: The Great Divergence – some comments from a post-Keynesian perspective*

This contribution discusses the book Saving and Investment in the Twenty-First Century: The Great Divergence by von Weizsäcker/Krämer (2021). It touches upon the underlying theoretical perspectives, von Weizsäcker’s neo-Austrian view and Krämer’s short-run Keynesian theory, and it proposes an alternative based on post-Keynesian distribution and growth theory. It also reviews the economic policy proposals of the book with respect to government deficits and debt, as well as international coordination of current-account balances, and finds broad agreement with modern post-Keynesian proposals, with some deviation when it comes to macroeconomic policy coordination among monetary, fiscal and wage/incomes policies. It concludes that these economic policy agreements should not be taken as a surprise. The requirements of stabilising government deficits and debt, in the face of an excess of private saving over private investment at full employment, and an excess of the private desire to hold net financial assets over the private-sector supply of financial liabilities, are based on solid national income and financial accounting. They are thus compatible with different macroeconomic theories regarding long-run equilibrium and adjustments towards it.

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.

Narrative Economics and Behavioral Economics: contributions to the behavioral insights on post-Keynesian theory

ABSTRACT The objective of this review is to discuss the formation of knowledge proposed by Keynes on his Treatise on Probability, and the economic agents’ behavior in an uncertainty scenario presented on his General Theory, by the Narrative Economics’ and Behavioral Economics perspectives. The hypothesis that will be analyzed is that in a keynesian uncertainty scenario, economic agents tend to act according to their context (social, geographic, historic, cultural) spreading narratives by which they identify themselves and orient decisions that cause sensible movements on the economic aggregates. Revisiting the literature, we could conclude that by bringing together the behavioral economy and the narrative economy theory, we could, from the Keynes’ insights on his writings, perceive strong empirical evidence that can be analytically important on the assessment of the economic fluctuations.

Modelling in the Case of a Heterodox Economist: Success and Failure of Michał Kalecki

The author proposes to look at the work of M. Kalecki through the lens of the history of economic thought informed by the methodology of economics, by applying to this aim a meta-economic model suggested by U. Mäki, enhanced with additional features. On the basis of the review of the main works of Kalecki, he finds that we cannot ascribe to his works virtually any of the factors proposed by Mäki as explanation of orthodox economic modelling failure. If it is so, the question may be asked why a more correct economic modelling based on the Kalecki’s theory and post-Keynesian theories has not been recognized as successful. It seems that the mainstream economics is an informal institution, yet strengthened by formal rules, which is unforgiving to heterodox economists. Kalecki seems to have been a paradigmatic case of a successful academic heterodox economist, author of significant innovations in the analyses of capitalism, socialism, and the intermediate regimes, all of which were ultimately rejected by the dominant social forces of the day, signalling ‘modelling failure’ in all academic and policy-institutional contexts. If that is indeed the case, then Mäki’s model fails to provide an explanation of modelling failure in economics.

Covid-19, economic activity and formal employment. A look at the effects of the pandemic in México and Nayarit, 2020

The objective of this writing is to document the effects of Covid-19 on economic activity and employment in Mexico and Nayarit. Economic Science, through macroeconomic analysis, offers an explanatory framework in relation to the proposed object of study: Neoclassical and Post-Keynesian theories precepts are reviewed. Due to its effects in Mexico and Nayarit, we are facing one of the deepest economic and labor crises in our economic history. There is a -21.6% drop in production in Mexico in May and a drop of -23.1% in the case of Nayarit in the second quarter of 2020. In relation to formal employment, a loss of 925,490 jobs are recorded as of July for Mexico as a whole and 17,181 jobs for Nayarit as of April 2020.