Showing papers in "Journal of Post Keynesian Economics in 1995"

Finance and Economic Breakdown: Modeling Minsky’s “Financial Instability Hypothesis”

Abstract: H. M. Minsky's financial instability hypothesis interpretation of Keynes's General Theory is outlined. Two stylized fact extensions are made to Goodwin's (1972) limit cycle model to incorporate the fundamentals of Minsky's hypothesis. The introduction of a 'real' finance sector converts Goodwin's stable system into a chaotic one, with the transition from stability to instability and breakdown determined by the level of interest rate and debt. A stylized government sector counterbalances capitalist tendencies towards euphoric investment and results in a cyclical but stable system. It is surmised that actual governments have developed away from this ideal of countercyclical behavior.

The Demand for Endogenous Money

Abstract: (1995). The Demand for Endogenous Money. Journal of Post Keynesian Economics: Vol. 18, No. 1, pp. 89-106.

Cumulative Causation and the “New” Theories of Economic Growth

Abstract: (1995). Cumulative Causation and the “New” Theories of Economic Growth. Journal of Post Keynesian Economics: Vol. 17, No. 3, pp. 381-402.

On the Long-Run Determinants of the U.S. Trade Balance: A Comment

Abstract: In a recent article in this joumal, Bahmani-Oskooee (1992) used the augmented Dickey-Fuller (ADF) test and a cointegration technique to detennine what variables have long-run relationships with the U.S. current account and trade balance. He finds that "ffie only variable that has a long-run relation with the current account or the trade balance is the full-employment budget" (p. 90). On the basis of this finding, the author concludes that there is strong support for the use of fiscal policy as a tool for coping with U.S. trade problems. Furthennore, he goes on, "our results indicate that a real ornominal effective exchange rate and tenns of trade do not have any long-run relation with the current account or the trade balance"' (p. 92). The purpose of this note is to point out that the statistical finding on which Bahmani-Oskooee bases his conclusion was derived on a particular method of hypothesis testing and econometric analysis. As I will show, these methods are somewhat outdated and inefficient, and had different and more powerful techniques been applied, the finding and conclusion would have been different. In fact, the research supported by these alternative and newer methodologies indicates that, contrary to the conclusions of Bahmani-Oskooee, (a) the current account (CA) and trade balance (TB), respectively, have long-run relationships with the M2 money supply, the tenns of trade (TOT), and the nominal exchange rate (NEX), and (b) TB is not

What Keynes Really Said about Deficit Spending

Abstract: (1995). What Keynes Really Said about Deficit Spending. Journal of Post Keynesian Economics: Vol. 17, No. 3, pp. 341-355.

The Long-Run Determinants of the U.S. Trade Balance Revisited

Abstract: (1995). The Long-Run Determinants of the U.S. Trade Balance Revisited. Journal of Post Keynesian Economics: Vol. 17, No. 3, pp. 457-465.

The efficiency of financial systems, liberalization, and economic development

Abstract: For at least twenty years, mainstream development economists have argued that financial liberalization is the road to higher levels of domestic savings/investment and more efficient allocation of capital. Efficiency is thus clearly associated with a more liberalized, deregulated financial system. This argument, in turn, is implicitly based on the dominant view on the working of financial markets that is, that financial institutions can be pictured as mere intermediaries between savers and investors. Further, the argument also relies on the view that the prices of financial assets reflect the underlying conditions of the final issuers of such assets, a view that has more recently been formalized as the efficient market hypothesis. If financial markets are the loci of allocation of capital, and asset prices are shown to guide savers toward investment with the highest productivity, financial markets are efficient allocators of capital. The aim of this article is to present a critical assessment of the concept of macroeconomic efficiency usually implicit in most mainstream analyses, and, therefore, of the financial liberalization hypothesis. Furthermore, this critical appraisal will be the basis upon which we will attempt to build an alternative Post Keynesian view of the role of the financial system in economic development. Such a view is concerned not so much with answering established questions (such as, "Should we liberalize or not, and how rapidly?"), as with presenting a set of other relevant, but often forgotten, ques

Does an independent central bank violate democracy

Abstract: The question of central bank independence is one of degree. A completely independent central bank is impossible as long as a country has provisions for altering central bank powers, even if that requires constitutional amendments. On the other hand, any central bank has at least some discretion in monetary policy is effectively determined by the currency board. In the United States and many other countries, people question the degree of central bankers from pressure to serve either the political motives of government officials or the financial interests of private individuals and organizations. This school of thought argues that the central bank should be left alone to pursue one monetary policy goal: price stability. It is feared that either government officials with too much influence over central bankers or laws setting inappropriate priorities for them undermine this independence. The federal Reserve already enjoys a good measure of independence, but many observers believe that it should have more. In particular, the advocates of greater Federal Reserve independence support reducing the statutory encumbrances on the Fed, especially the Humphrey-Hawkins Act. But problems arise...

The Independence of Central Banks: A Critical Assessment of the Arguments

Abstract: (1995). The Independence of Central Banks: A Critical Assessment of the Arguments. Journal of Post Keynesian Economics: Vol. 18, No. 2, pp. 159-175.

Should public assistance be targeted

Abstract: (1995). Should Public Assistance Be Targeted? Journal of Post Keynesian Economics: Vol. 18, No. 1, pp. 3-28.

The Determination of Industrial Prices in India: A Post Keynesian Approach

Abstract: (1995) The Determination of Industrial Prices in India: A Post Keynesian Approach Journal of Post Keynesian Economics: Vol 18, No 1, pp 29-52

Divergent Trends in Gender Segregation by Occupation in the United States: 1970–92

Abstract: (1995). Divergent Trends in Gender Segregation by Occupation in the United States: 1970–92. Journal of Post Keynesian Economics: Vol. 17, No. 3, pp. 357-378.

Keynes and the Collapse of the British Cotton Industry in the 1920s: A Microeconomic Case against Laissez-Faire

Abstract: Many of the greatest economic evils of our time are the fruits of risk, uncertainty, and ignorance. It is because particular individuals, fortunate in situations or in abilities, are able to take advantage of uncertainty and ignorance, and also because for the same reason big business is often a lottery, that great inequalities of wealth come about; and these same factors are also the cause of the unemployment of labour, or the disappointment of reasonable business expectations, and of the impairment of efficiency and production. Yet the cure lies outside the operations of individuals; it may even be to the interest of individuals to aggravate the disease. [The End of Laissez Faire]

The Endogenous Money Stock: Empirical Observations from the United Kingdom

Abstract: The purpose of this paper is twofold. First, we update in the second section the credit segment of a Post Keynesian macro model, the detailed features of which will already be familiar to the readers of this journal (Arestis, 1987-88). What the updating is especially anxious to capture is the sharp increase in the share of U.K. bank debt held by the personal sector since we should expect the personal sector's demand for bank lending to be more interest-sensitive than the demand for bank lending from finns.' Figure 1 demonstrates the essential fact for this study: after 1983 consumer borrowing became a vital component in bank loan portfolios, while at the same time a decline in the share of bank advances going to corporations or industrial and commercial companies (ICCs) was observed. Figure 1 clearly shows that consumer and ICC shares of bank lending combined accounted for over 86 percent of the total in 1979(3). After the "crossover" during 1983, their combined shares held briefly at 85 percent but by 1988(3) they accounted for only 78 percent of total bank debt. Over the same period, (nonbank) financial institutions increased their share of total bank debt from 0.14 in 1979(3) to 0.15 in 1983(3) and then to 0.22 by 1988(3). Since 1988(3), the shares have

Business Cycle Volatility and Economic Growth: The Historical Record, 1870–1986

Abstract: A rich theoretical and empirical tradition exists in the economics liter- ature that argues that business cycle volatility is strongly and positively correlated with real per-capita economic growth. Joseph Schumpeter (1961) argues that economic development critically depends on the introduction and adoption of new technology which occurs in waves, and is therefore a main cause of business cycle volatility. Simon Kuznets (1967), addressing both the empirical and theoretical literature of his time (including Schumpeter's), concludes that business cycle volatility and economic growth are both statistically and causally related, with those variables that cause increased cyclical volatility increasing the rate of economic growth. The Schumpeter-Kuznets tradition maintains that a fall in business cycle volatility should result in a fall in the rate of economic growth. And, given the rate of population growth, this would invariably reduce the rate of per-capita economic growth. An important component of real business cycle theory, which incor- porates some of the most recent literature on business cycles, follows the Schumpeter-Kuznets tradition in arguing that real shocks to the economy, largely embodied in technical change, play the detennining role both in affecting business cycle volatility and in determining the rate of economic growth. Technological shocks take the form of a random walk with drift, thereby affecting the pace of economic growth.

Federal Reserve Independence: What Kind and How Much?

Abstract: In the United States, monetary functions were undertaken by the Treasury and by private organizations of banks before the establishment of the Federal Reserve, and some would argue with better results. There is no reason to believe that, under current conditions, a central bank, however desirable as an alternative, is "necessary" and, therefore, that an independent central bank is necessary. However, there is in the United States a central bank with some degree of independence that is not likely to disappear in the foreseeable future. The practical question is how much independence is desirable? A related consideration is, what kind? These questions involve political as well as economic factors that, in recent years, have generated a good deal of heat and some light. (For relatively recent compilations of relevant articles, see Mayer, 1990, and Van Hoose, 1995). International comparisons indicate that the Federal Reserve is a relatively "independent" central bank that has delivered anti-inflationary "services" (Alesina and Summers, 1993). Monetarists, however, have argued that Federal Reserve independence is an almost insurmountable barrier to effective monetary policy and have long proposed "rules" as a substitute for "discretion." Keynesians and others, without a belief in a rigid linkage between money and aggregate economic activity, but with a concern about systemic processes and unpredictable events that connect the financial system to fluctuations in real output, have been less sanguine about tying the Federal Reserve's hands. The issue of independence has, consequently, fused with the economic

Paradox of Hysteresis and Real-Wage Flexibility in Australia

Abstract: This study examines the paradoxical coexistence of high unemployment rates and real-wage flexibility in Australia during the period 196692. The neoclassical paradigm postulates that real-wage flexibility is a prerequisite for the economy to operate at the natural rate or full employment level of output. The Keynesian paradigm blames tfie downward stickiness of nominal wages for the prevalence of unemployment in an economy. However, both paradigms agree that the divergence of the unemployment rate from the natural rate is only a short-run phenomenon and that in the long run it reverts to the natural rate. New Keynesians and Neo-Keynesians, while dissenting on the speed of reversal, agree with the long-run natural rate outcome postulated by the dominant paradigms (Cross, 1988; Davidson, 1993). The concept of NAIRU (nonaccelerating inflation rate of unemployment) attempts to synthesize the conflicting paradigms and to explain the nonreversal to the natural rate in terms of socioeconomic policy variables (Layard et al., 1991). The nonreversal of the unemployment rate to the natural rate and consequent persistence of unemployment has a vague similarity to the well-defined properties of remanence and selective memory associated with the concept of hysteresis in physics. These properties of hysteresis are generated by loading and unloading of nonlinear multibranch inputoutput systems with heterogeneous elements (Krasonsel'skii and Pokorovoskii, 1989; Mayergoyz, 1991). The presence of unit roots or zero eigenvalue dynamics in the unemployment rate time series shows, first, that the current unemployment rate depends on the past rates; second, that a shock can lead to a permanent change or nonmean reversion because of the absence of a unique equilibrium. Such characteristics of unit roots are consistent with

Sidney Weintraub: the genesis of an economic heretic

Abstract: What makes an established scholar question the foundations of his discipline, break with the great majority of his profession, and abandon a respected position in the scientific mainstream for the isolation and insecurity of the margins? What intellectual difficulties does such a heretic encounter, and how can they be overcome? These questions are posed very sharply by the career of Sidney Weintraub, who moved in the course of a few years after 1958 from being a distinguished practitioner of orthodox Keynesianismto become in effect the founder of Post Keynesian economics in the United States, suffering in the process a substantial drop in status, reputation, and influence. Born in Brooklyn in 1914, Weintraub' graduated from New York University, spending 1938-39 at the London School of Economics. Returning to the United States on the eve of the Second World War, he worked on his doctorate, on "Monopoly and the Economic System," which would have appeared as a book but for the untimely death of his prospective publisher in the war. Weintraub then entered the federal bureaucracy and subsequently enlisted in the army. After demobilization, he taught for several years at the (Catholic) St. John's University in New York before moving to the University of Pennsylvania in

Autonomous and Accountable

Abstract: (1995). Autonomous and Accountable. Journal of Post Keynesian Economics: Vol. 18, No. 2, pp. 177-187.

Macroeconomic Determinants of Tariff Policy in a Developing Economy: Costa Rica, 1963–92

Abstract: (1995). Macroeconomic Determinants of Tariff Policy in a Developing Economy: Costa Rica, 1963–92. Journal of Post Keynesian Economics: Vol. 17, No. 4, pp. 636-644.