Showing papers in "Journal of Post Keynesian Economics in 2014"
TL;DR: The term "Washington Consensus" was originally used to describe a list of ten reforms that were practically universally agreed in Washington to be desirable in most Latin American countries as of 1989.
Abstract: The term "Washington Consensus" was originally used to describe a list of ten reforms that I argued were practically universally agreed in Washington to be desirable in most Latin American countries as of 1989. It acquired alternative meanings over the years, one of which was a summary of the policies toward their client countries of the Washington-based international financial institutions (IFIs), and another of which was what critics imagined the policies of those institutions to be (a list that tends to consist of policies that never did command a consensus, even in Washington). It is argued that in its original sense, the Washington Consensus consists of policies that still amount to a sensible--but incomplete--reform agenda, but that some of the deviations between my original list and what the IFIs have advocated are undesirable. However, even the original list needs to be supplemented in order to provide a policy agenda for Latin America today. The paper sketches the reform agenda recently laid out ...
181 citations
TL;DR: In this paper, a time-series test of Thirlwall's Law for Brazil during the 1890-1973 period is presented, and the results confirm the existence of a long-run relationship between Brazilian gross domestic product (GDP), terms of trade, and world income.
Abstract: The paper offers a time-series test of Thirlwall's Law for Brazil during the 1890-1973 period. The results confirm the existence of a long-run relationship between Brazilian gross domestic product (GDP), terms-of-trade, and world income, as Thirlwall's Law predicts. In addition, an error correction model is estimated, which shows that adjusting toward Thirlwall's Law equilibrium explains a substantial part of total variation of real GDP in the short run.
94 citations
TL;DR: The authors argues that the U.S. economy confronts deeper- seated problems concerning the aggregate demand generation process, and that these problems have been obscured by a range of demand compensa- tion mechanisms (rising consumer debt, a stock market boom, and rising profit rates).
Abstract: Many argue that the current recession is the product of a temporary stock market wobble. This paper argues that the U.S. economy confronts deeper- seated problems concerning the aggregate demand generation process. For two decades, these problems have been obscured by a range of demand compensa- tion mechanisms—rising consumer debt, a stock market boom, and rising profit rates. Now, these mechanisms are exhausted. Fiscal policy adjustments and dollar depreciation are the only stable exits from this impasse, but they must be accompanied by measures rectifying the income distribution imbalances at the root of the problem. Absent this, deficient demand will reassert itself.
89 citations
TL;DR: In this article, the authors disentangle the effects of trade liberalization during the mid-1980s from the liberalization involved in the North American Free Trade Agreement (NAFTA) on exports, imports, and the balance of trade in Mexico.
Abstract: The aim of this paper is to disentangle the effects of trade liberalization during the mid-1980s from the liberalization involved in the North American Free Trade Agreement (NAFTA) on exports, imports, and the balance of trade in Mexico. The main empirical results suggest that the trade reforms during the mid-1980s had a significant effect on trade, exports, and imports; however, the effects of NAFTA, at least on exports, are negligible. Since the mid-1980s, the propensity to import has exceeded the propensity to export, and this has worsened the growth rate consistent with balanced trade, which is a major explanation of the slowdown of Mexico's growth in recent years. NAFTA has not delivered the improved growth performance that was promised by Mexico's political leaders at the time.
81 citations
TL;DR: This paper investigated the effect of exchange rate uncertainty on stock market development as one of the most important indicators of financial market development and developed long and short-run models (a bounds testing approach to cointegration) for twelve emerging economies over the period 1980-2010.
Abstract: The effect of exchange rate risk on individual countries' macroeconomic variables can follow an ambiguous pattern, thus making it better to text each case empirically. The effect of exchange rate volatility on stock market development is still an enigma. This article investigates the effect of exchange rate uncertainty on stock market development as one of the most important indicators of financial market development. To do this, we develop long- and short-run models (a bounds testing approach to cointegration) for twelve emerging economies over the period 1980-2010. Estimates from all models show that exchange rate volatility has a significant effect on stock market development in both the short run and long run in a majority of countries. Despite many similarities among emerging economies, the results obtained in this article suggest that the effect of exchange rate volatility on stock market development works via each country's specific structure and characteristics.
70 citations
TL;DR: In this article, the authors interpret the economic development leading to the recent crisis as a series of events within a Minsky-Veblen cycle and introduce conspicuous consumption concerns, as described by Veblen, into a stock-flow-consistent post Keynesian model and demonstrate that a decrease in income equality leads to a corresponding increase in debt-financed consumption demand.
Abstract: This article reflects on the economic development leading to the recent crisis and interprets this development as a series of events within a Minsky-Veblen cycle. To illustrate this claim we introduce conspicuous consumption concerns, as described by Veblen, into a stock-flow-consistent post Keynesian model and demonstrate that, under these conditions, a decrease in income equality leads to a corresponding increase in debt-financed consumption demand. Here Minskian dynamics come into play: if perceived economic stability causes banks' margins of safety to decrease sufficiently, increased credit demand is accommodated by credit supply giving rise to a debt-financed consumption boom. As the solvency of households decreases and interest rates move up, banks reduce lending, triggering household bankruptcies and, finally, a recession. What follows is a stable period of consolidation, where past debts are repaid, financial stability is regained and conspicuous consumption motives may gradually take over again. ...
66 citations
TL;DR: In this article, the authors evaluate the Washington Consensus from the point of view of interest rate liberalization and conclude that it has been a failure from a theoretical perspective. But they do not assess the overall performance of the Washington consensus.
Abstract: The aim of this contribution is not to assess the overall performance of the Washington Consensus. It is, rather, to look critically at the Washington Consensus from the point of view of interest rate liberalization. Not only is the theoretical angle of financial liberalization discussed in this contribution, but the empirical side will also be appraised. The paper argues that from this perspective, the Washington Consensus has been a failure. Based on this assessment, the paper also evaluates the "revised" Washington Consensus, always from the financial liberalization perspective. The latter argues for completing the "first-generation" liberalizing reforms, which, of course, include the financial liberalization point of view. In this regard, the paper concludes that both the Washington Consensus and the "revised" Washington Consensus are not very promising. This conclusion is pertinent despite the concession by the Washington Consensus/"revised" Washington Consensus supporters that two important prerequi...
63 citations
TL;DR: In this article, it is shown that asset-based financial systems rely on a fully endogenous supply of high-powered money, with central banks engaging essentially in "defensive" operations.
Abstract: It is shown that asset-based financial systems, just like overdraft financial systems, rely on a fully endogenous supply of high-powered money, with central banks engaging essentially in "defensive" operations. This is demonstrated through an analysis of the Canadian monetary process, which is devoid of any reserve requirements, with the overnight rate closely gravitating around the target overnight rate. It is shown that the American process is no different, despite being less transparent. The main distinctness is that, in contrast to the Fed, the Bank of Canada knows with perfect certainty both its supply of and the demand for settlement balances.
60 citations
TL;DR: The authors argued that rationality and conventions are compatible but reasonable behavior may be conventional or (partly) unconventional, and stressed the importance of creativity and an optimistic disposition to face uncertainty (animal spirits).
Abstract: When discussing the relation between rationality and conventions under non-neoclassical uncertainty, almost all economists focus on the rationality of following a convention. This paper contributes to the construction of an alternative approach, which argues that conventions and rationality are compatible but reasonable behavior may be conventional or (partly) unconventional. The paper reviews several arguments for the reasonableness of following a convention. It then stresses the importance of factors such as creativity and an optimistic disposition to face uncertainty (animal spirits) and shows how these factors are crucial for determining whether behavior will be conventional or not.
60 citations
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TL;DR: In this article, the authors provide an abbreviated description of the manner in which the U.S. government carries out its fiscal operations in practice, including an analysis of coordination of the activities of the Fed and Treasury.
Abstract: Modern governments with a floating currency face no inherent financial constraints. Unfortunately, most modern macro-theorists continue to write as if these nations were financially constrained by (1) the magnitude of current tax "revenue" and (2) the private sector's willingness to "finance" (i.e., buy bonds) spending in excess of (1). Such a position badly misrepresents the actual workings of government finance. In this paper, we provide an abbreviated description of the manner in which the U.S. government carries out its fiscal operations in practice, including an analysis of coordination of the activities of the Fed and Treasury.
59 citations
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TL;DR: This paper argued that the differences between mainstream and heterodox contributions in economics can be explained by understanding the competing ontological presuppositions of the mainstream and the heterodox traditions of economics.
Abstract: Modern economics produces many interpretations of the category of equilibrium as well as competing views of its relevance or worth for economic theorizing. In particular, interpretations and valuations often differ systematically between mainstream and heterodox contributions. I argue that these differences are best explained through understanding the competing ontological presuppositions of the mainstream and heterodox traditions. If correct, this explanation reinforces the assessment advanced elsewhere (Lawson, 2003) that mainstream and heterodox traditions are best distinguished not according to substantive claims or policy stances but rather precisely in terms of their ontological commitments.
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TL;DR: In this article, the authors show that large increases in unofficial economies in many transition economies arise from a dynamic interaction with rising income inequality and public sector changes in a multiple equilibria system.
Abstract: Large increases in unofficial economies in many transition economies arise from a dynamic interaction with rising income inequality and public sector changes in a multiple equilibria system. Return...
TL;DR: However, chartalism as the main interpretation for the existence of money has some limitations as discussed by the authors, and the view according to which institutions that provide bridges between the present and the future create the conditions for economic agents to be willing to hold money is far more instructive.
Abstract: Recent emphasis on chartalism is an important extension of the monetary theory within Post Keynesian analysis. However, chartalism as the main interpretation for the existence of money has some limitations. Sovereignty, understood as the power to tax and to collect in the token of choice, is not the main explanation for the existence of money, even if modern money is ultimately chartal money. The view according to which institutions that provide bridges between the present and the future create the conditions for economic agents to be willing to hold money is far more instructive. The state is certainly one of those institutions, but so are banks, and other financial institutions, which, during certain historical periods, might have had more importance.
TL;DR: In this article, the authors suggest an alternative balance sheet management approach to improve financial stability of developing countries recipient of large capital inflows, based on Minsky's idea that financial crises are endemic and endogenous to the system.
Abstract: The response to increasingly frequent financial crises has concentrated on the governance of financial institutions and markets through the introduction of best practice norms to make them more robust. However, this approach may simply repeat the financial history of persistent crisis if Hyman Minsky's idea that financial crises are endemic and endogenous to the system is correct. This paper suggests an alternative balance sheet management approach to improve financial stability of developing countries recipient of large capital inflows.
Abstract: Leisure is not a typical theme of analysis in Post Keynesian economics The analysis of leisure, however, provides an opportunity to critique mainstream economic analysis as well as contributes toward our understanding of an important facet of modern economies This paper provides an empirical contribution toward this objective by focusing upon leisure demand As well as drawing upon early Post Keynesian and institutional and sociological analyses, the paper offers original empirical insights from the United Kingdom using a qualitative choice analysis
TL;DR: Chang and Grabel as discussed by the authors argue that the view that there is no alternative to neoliberal economic policies in developing countries is fundamentally and dangerously incorrect, and demonstrate that feasible alternatives to neo-liberal policies exist that can promote rapid economic development that is equitable, stable, and sustainable.
Abstract: This paper summarizes our new book, Reclaiming Development: An Alternative Economic Policy Manual (Chang and Grabel, 2004). It begins from the premise that the view that there is no alternative to neoliberal economic policies in developing countries is fundamentally and dangerously incorrect. The "no alternative" dictum has commonly been associated with popularizations (and arguably, misinterpretations) of Williamson's original statement of the "Washington Consensus." We demonstrate that feasible alternatives to neo-liberal policies exist that can promote rapid economic development that is equitable, stable, and sustainable. Some of these are proposals for strategies not yet adopted. But many others have already proven their worth in practice across the globe. We offer them in order to shatter the idea that there is no alternative, and to contribute to the vigorous campaign now underway across the globe to "reclaim development" from the neoliberal orthodoxy.
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TL;DR: In this article, the authors highlight the need to overcome the fundamental problems of the "Washington Consensus" that have not been entirely solved in its recent reformulations calling for a "second generation of reforms."
Abstract: This paper underscores the need to overcome the fundamental problems of the "Washington Consensus" that have not been entirely solved in its recent reformulations calling for a "second generation of reforms." Such problems are its narrow view of macroeconomic stability; its disregard for the role that policy interventions in the productive sector can play in inducing investment and accelerating growth; its tendency to subordinate social policies to economic policies; and, finally, its tendency to forget that it is citizens who should choose what economic and social institutions they prefer. The examination of the frustrating experience of Latin America under structural reforms provides the empirical backdrop for the analysis.
TL;DR: In this article, the authors define financial globalization as the integration of financial markets of all countries of the world into one, which is only possible provided uniformity can be brought in the terms and conditions.
Abstract: Financial globalization, by definition, means the integration of financial markets of all countries of the world into one. This is only possible provided uniformity can be brought in the terms and ...
TL;DR: Lavoie, King, and Dow share one common theme in their criticism of my review of King's (2001) book A History of Post Keynesian Economics: they all object, in different ways and in different degrees, to my definition of the boundary lines that encompass post Keynesian economics as discussed by the authors.
Abstract: Lavoie, King, and Dow share one common theme in their criticism of my review of King’s (2001) book A History of Post Keynesian Economics. They all object, in different ways and in different degrees to (1) my definition of the boundary lines that encompass Post Keynesian economics and (2) who, in the 21st century, should be entitled to be labeled a Post Keynesian.
TL;DR: In this article, two specific demand-side stabilization methods are examined: conventional pump priming and the new designation of fiscal policy effectiveness found in the new consensus literature, and a theoretical critique of their respective transmission mechanisms reveals that they operate in a trickledown fashion that not only fails to secure and maintain full employment, but itself contributes to the increasing postwar labor market precariousness and the erosion of income equality.
Abstract: The present article offers a fundamental critique of fiscal policy as it is understood in theory and exercised in practice. Two specific demand-side stabilization methods are examined here: conventional pump priming and the new designation of fiscal policy effectiveness found in the new consensus literature. A theoretical critique of their respective transmission mechanisms reveals that they operate in a trickle-down fashion that not only fails to secure and maintain full employment, but itself contributes to the increasing postwar labor market precariousness and the erosion of income equality. The two conventional demand-side measures are then contrasted with the proposed alternative—a bottom-up approach to fiscal policy based on a reinterpretation of Keynes's original policy prescriptions for full employment. The article offers theoretical, methodological, and policy rationale for government intervention that includes specific direct employment and investment initiatives, which are inherently different ...
TL;DR: The authors analyzes the economic and social development of Latin America after nearly two decades of macroeconomic policies and reforms in line with the "Washington Consensus" and shows that these policies lowered inflation and induced an export boom but failed to boost domestic investment and to remove the balance-of-payments binding constraint on the region's long-term path of economic expansion.
Abstract: The paper analyzes the economic and social development of Latin America after nearly two decades of macroeconomic policies and reforms in line with the "Washington Consensus." It shows that these policies lowered inflation and induced an export boom but failed to boost domestic investment and to remove the balance-of-payments binding constraint on the region's long-term path of economic expansion. Four alternative explanations of such poor performance of the Washington Consensus are compared. In particular, the paper argues that, contrary to mainstream opinion, in Latin America, there is no clear association between the depth of macroeconomic reforms and economic growth performance.
TL;DR: The authors examined the relation between the federal funds rate and the prime rate in two sub-periods, 1987:02-1994:01 and 1994:02 -2002:05.
Abstract: Two subperiods, 1987:02-1994:01 and 1994:02-2002:05, are selected for examining the relation between the federal funds rate and the prime rate. Empirical evidence from both sample periods reveals a positive cointegration relation representing a pass-through from the federal funds rate to the prime rate. Results from the earlier sample period reveal a two-way causality between the federal funds rate and the prime rate. In contrast, the results from the more recent sample period indicate that causality runs from federal funds to the prime rate.
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TL;DR: The authors argue that economic growth is fundamentally constrained from the supply side, which is why it is desirable to maintain the constraints on balance-of-payments deficits that are provided by limited reserves.
Abstract: This paper argues that economic growth is fundamentally constrained from the supply side, which is why it is desirable to maintain the constraints on balance-of-payments deficits that are provided by limited reserves. Reform of the international monetary system could lead to more harm than good if it undermines the discipline provided by reserves. The paper nonetheless identifies a number of reforms that it argues would be compatible with the maintenance of a globalized world consisting of market economies and the sovereignty where every country needs to see itself as a net gainer from a reform package. The reforms advocated are: introduction of "reference rates" to provide a guide for the exchange rates that the official sector believes consistent with macroeconomic equilibrium in the medium term; using the World Economic Outlook to assess progress toward the payments objectives that underlie the reference rates; adoption of an actively anti-cyclical stance by the IMF; employment of instruments like unre...
TL;DR: In this paper, the authors argue that the notion of the euthanasia of the rentier is a necessary complement to the socialization of investment and propose alternatives to the permanent fiscal adjustment, the main legacy of the Washington Consensus, from a Post Keynesian perspective.
Abstract: The debt crisis of the early 1980s prompted several analyses that emphasized the negative role of fiscal deficits on economic development. This negative view of fiscal deficits was consolidated in the "Washington Consensus" agenda. International financial crises--recurrent in a world of true uncertainty with unregulated capital flows and flexible exchange rates--have led to perennial fiscal adjustment. Alternatives to the permanent fiscal adjustment, the main legacy of the Washington Consensus, from a Post Keynesian perspective, are presented. It is emphasized that the notion of the euthanasia of the rentier is a necessary complement to the socialization of investment.
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TL;DR: The chartalist theory of money has been explored in this paper, where the consequences of taxes for the development of markets and monetary exchange are examined. But chartalism has direct implications for catallactic processes, and the origins of money are found in the medieval legal institution of wergeld.
Abstract: This paper explores recent developments in the chartalist theory of money, and looks, in the first section, at the consequences of taxes for the development of markets and monetary exchange. Contrary to Ludwig von Mises's contention that chartalism be acatallactic, I argue, using both theoretical and historical resources, that chartalism has direct implications for catallactic processes. In the second section, I consider the origins of money. I shed new light on Pierre Grierson's thesis, which has been discussed in recent chartalist contributions, that the origins of money are to be found in the medieval legal institution of wergeld. The final section examines the wider implications of chartalism for the analysis of the state in which I put forward a model of the "extortionary state."
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TL;DR: The authors suggests that mathematics may have become so important in economics for four reasons: (1) to make use of existing human capital, (ii) to attain scientific respectability, (iii) to help assure security with respect to claims of truth and (iv) because economics was created primarily by Western economists to understand Western economic behavior.
Abstract: This paper suggests that mathematics may have become so important in economics for four reasons: (1) to make use of existing human capital, (ii) to attain scientific respectability, (3) to help assure security with respect to claims of truth, and (4) because economics was created primarily by Western economists to understand Western economic behavior.
TL;DR: Weintraub's work as mentioned in this paper shows that mathematics does not provide a fixed point of reference for economics, and that it has proved impossible to express mathematics itself as a complete formal system.
Abstract: Weintraub's study shows that mathematics does not provide a fixed point of reference for economics. He explains how the notions of rigor and consistency have changed within mathematics over the years, and how it has proved impossible to express mathematics itself as a complete formal system. As a result, we can see more clearly that there is methodological confusion embedded in much applied economics, which gives priority to mathematical expression. In providing this account, Weintraub raises historiographical issues, which we address here--notably who should construct histories, given the normative content of all approaches (including science studies)?
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TL;DR: In this paper, the validity of the balance-of-payments-constrained growth model in the case of the Slovenian economy with a cointegration approach was analyzed.
Abstract: The paper estimates the validity of the balance-of-payments-constrained growth model in the case of the Slovenian economy with a cointegration approach. Three main conclusions can be drawn from the analysis. First, the results identified a long-run relationship between real gross domestic product and variables of real exports. Second, as the results from the basic model suggest, to ease the pressure from the balance-of-payments constraints on output growth, shifts in elasticities of export and import flows are required. Third, owing to the reported modernization needs of the Slovenian economy, persistence of import patterns, and empirically documented strong dependence of exports on sufficient imports, manipulation of export demand seems to be more justified.
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TL;DR: The authors argues that the current dollar-based system requires policies that favor export-led growth and describes how that paradigm affects the global and U.S. economies, and analyzes previous reform efforts, and concludes with an alternative proposal to reinstate public management of the international payments system.
Abstract: Proposals for dollarization and for expanding currency blocs implicitly acknowledge that the international monetary system is deeply flawed. The ongoing failures of fixed, floating, and pegged exchange rate regimes and currency boards are signaling that it is the currency regime itself that is collapsing. This paper argues that the current dollar-based system requires policies that favor export-led growth and describes how that paradigm affects the global and U.S. economies. It calls attention to the instability inherent in competing currency blocs, analyzes previous reform efforts, and concludes with an alternative proposal to reinstate public management of the international payments system.
TL;DR: In this article, it is shown that King followed the taxonomy proposed by Davidson in the 1970s and early 1980s, and that Davidson cannot blame King for using these definitions, despite their idiosyncrasies, heterodox theories contain a large amount of commonalities that should be underlined.
Abstract: In a review of John King's book, Paul Davidson has argued that King had been in error when including Sraffians and Kaleckians in his Post Keynesian classification. Davidson seems to believe that Post Keynesianism should be restricted to Fundamental Keynesianism. It is shown that King followed the taxonomy proposed by Davidson in the 1970s and early 1980s. Hence, Davidson cannot blame King for using these definitions. The paper concludes by claiming that despite their idiosyncrasies, heterodox theories contain a large amount of commonalities that ought to be underlined.