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Showing papers in "Metroeconomica in 2012"


Journal ArticleDOI
TL;DR: In this article, the authors examine the Kaleckian specification of the accumulation function and find that it is behaviorally implausible and lacks empirical support, and they conclude that the long-run accumulation is relatively insensitive to variations in the utilization rate of capital.
Abstract: The accumulation function is critical for the properties and implications of structuralist and post-Keynesian growth models, but there is considerable disagreement over the specification of this function. A large Kaleckian literature extends the standard short-run ‘Keynesian stability condition’ to the long run by assuming that long-run accumulation is relatively insensitive to variations in the utilization rate of capital. The Kaleckian position has been defended by Dutt and Lavoie, among others. This paper examines the defense and finds it unconvincing: the Kaleckian specification of the accumulation function is behaviorally implausible and lacks empirical support.

190 citations


Journal ArticleDOI
TL;DR: In this article, the authors show that, contrary to the position taken by the critics of the Kaleckian model, this model is capable of maintaining an endogenous rate of capacity utilization, paradox of thrift and the paradox of costs, even if the problem of Harrodian instability arises.
Abstract: Starting from potential Harrodian instability in the Kaleckian distribution and growth model we survey Kaleckian reactions put forward to avoid or to cope with this instability. We show that, contrary to the position taken by the critics of the Kaleckian model, this model is capable of maintaining an endogenous rate of capacity utilization, the paradox of thrift and the paradox of costs in the long run, even if the problem of Harrodian instability arises. We conclude that Kaleckian models are more flexible than their Harrodian and Marxian critics suppose when attacking the simple textbook version.

125 citations


Journal ArticleDOI
TL;DR: This article examined the relationship between the distribution of income and capacity utilization in the context of the Kaleckian model of growth and distribution and provided an exposition of the underlying theory of wage-and profit-led growth.
Abstract: This paper examines the relationship between the distribution of income and capacity utilization in the context of the Kaleckian model of growth and distribution. We provide an exposition of the underlying theory of wage- and profit-led growth. We emphasize the implications of possible non-linearities in the determination of the final equilibrium and why—because of them—a redefinition of the concept of wage- and profit-led economy is necessary. We estimate the demand and distribution schedule for the US economy using a two-stage least squares approach. Our findings confirm the hypothesis of a non-linear distribution schedule and therefore the need to redefine the concepts wage- and profit-led growth.

87 citations


Journal ArticleDOI
Christian Schoder1
TL;DR: In this article, the authors study the endogeneity of the normal utilization rate and the expected secular rate of sales growth empirically for the US manufacturing sector and its sub-sectors.
Abstract: Responding to the Classical criticism of the baseline Kaleckian growth model which is not fully adjusted in the long run, post-Kaleckians have proposed model variants that imply the economy to converge to a steady state in which the realized and the normal utilization rates as well as the realized and the expected secular rate of sales growth are congruent. Convergence is caused by endogenous adjustments of the conventional rates to their respective realized rates which is theoretically justified by hysteresis effects. Using a dynamic linear specification of the Kaleckian investment function in state-space form and by the aid of the Kalman filter, this paper studies the endogeneity of the normal utilization rate and the expected secular rate of sales growth empirically for the US manufacturing sector and its sub-sectors. We find evidence for an endogenous adjustment of both variables.

32 citations


Journal ArticleDOI
TL;DR: In this paper, a micro model of employment demand with hysteresis was derived, whereby firms can adjust along an intensive (employment) and an extensive (hours of work) margin.
Abstract: In this paper, we derive a micro model of employment demand with hysteresis whereby firms can adjust along an intensive (employment) and an extensive (hours of work) margin. A mechanism of aggregation over heterogeneous firms is used to generate the corresponding aggregate dynamics. Longitudinal micro monthly data on a representative sample of Portuguese manufacturing firms are used in the empirical analysis. Our results indicate that signs of hysteresis found at the micro level do not vanish completely by aggregation and that hysteresis is magnified by the existence of an additional margin of adjustment (the hours adjustment margin).

32 citations


Journal ArticleDOI
TL;DR: This article showed that there exists a positive and stable long-run equilibrium even under the "debt-burdened" regime without any constraint on the nominal interest rate, and this conclusion crucially depends on the assumption that the retention ratio of firms is equal to unity.
Abstract: By using a Kaleckian model with debt accumulation, Hein (2007; Metroeconomica, 56 (2), pp. 310–39) found that the long-run equilibrium value of the debt–capital ratio is positive and stable only if interest rates are extremely high and if the short-run equilibrium exhibits the ‘debt-led’ growth regime. However, this conclusion crucially depends on the assumption that the retention ratio of firms is equal to unity. By relaxing this assumption, we show that there exists a positive and stable long-run equilibrium even under the ‘debt-burdened’ regime without any constraint on the nominal interest rate.

32 citations


Journal ArticleDOI
Lance Taylor1
TL;DR: In this paper, several Kaleckian models are set out, including Harrod-and Domar-style investment functions combined with distributive dynamics to generate counterfactual clockwise cycles.
Abstract: Several Kaleckian models are set out. Harrod- and Domar-style investment functions are specified, and combined with distributive dynamics to generate Goodwin-style cycles. A counterclockwise cycle in a two-dimensional phase diagram for capacity utilization and the wage share is based on long-run profit-led demand and a profit squeeze at high activity levels, consistent with Domar. Harrod-style investment and short-run wage-led demand generate counterfactual clockwise cycles. Financial dynamics involving the equity valuation ratio are considered. Both the ratio and equity price inflation demonstrate positive own-feedback. The ratio can be stabilized cyclically by capital stock growth and/or rising household net worth or debt. Debt accumulation persists (or ‘overshoots’) after equity price inflation switches to a negative rate. A Minsky-style model with Harrodian investment can be stabilized by accumulation of business debt.

31 citations


Journal ArticleDOI
TL;DR: In this paper, a three-country stock-flow consistent (SFC) model is analyzed with a fixed dollar-yuan parity and a flexible version of the same model.
Abstract: World macroeconomic adjustments are analysed with a three-country Stock-Flow Consistent (SFC) models. Three SFC models are considered, the first one with a fixed dollar–yuan parity including a version with Chinese foreign reserves' diversification, the second with a flexible dollar–yuan parity which can be freely floating or following a more managed float, the third one being a generalization of the two others with flexible prices instead of constant prices. The fixity of the dollar–yuan parity limits the adjustments facing shocks and world imbalances while a more flexible dollar–yuan exchange rate appears as a powerful adjustment mechanism to reduce these imbalances.

27 citations


Journal ArticleDOI
Hiroshi Nishi1
TL;DR: In this article, the authors formally derive a version of the Minskian taxonomy of the firms' financial structure (hedge, speculative and Ponzi types), under the economic growth context in the long run.
Abstract: In this paper, we formally derive a version of the Minskian taxonomy of the firms' financial structure (hedge, speculative and Ponzi types), under the economic growth context in the long run. As for the economic growth, we formalize the mechanism of debt-led (debt-burdened) growth where the economy expands as the debt variables increase (decrease). By explicitly introducing the relationship between the finance growth regime and Minskian taxonomy in a dynamic model, the model in this paper enables us to evaluate whether or not the economic growth regime is sounded in terms of the firms' financial positions.

26 citations


Journal ArticleDOI
TL;DR: In this paper, the authors present a growth model with a Marx-Hicks unemployment rate and a Keynesian profit rate, which rebalances effective labor supply and employment growth.
Abstract: This paper presents a neo-Kaleckian growth model with unemployment, endogenous technical progress, and a steady-state requirement of balanced labor demand and supply growth There are two key innovations: first, a Marx–Hicks unemployment rate–profit rate channel affecting labor-saving technical progress; second, a Keynesian unemployment rate channel affecting saving and investment Changes in the unemployment rate change the profit rate, rebalancing effective labor supply and employment growth This provides a Hicksian resolution of Harrod's knife-edge The Keynesian unemployment rate channel strengthens the growth benefits of a lower unemployment rate, potentially obviating any growth–unemployment trade-off

22 citations


Journal ArticleDOI
TL;DR: In this paper, the authors examined the sustainability of national debt and economic growth, and the growth effects of government debt and income taxation, and showed that the long-run debt/GDP ratio is greater than zero if the government aims to maximize the balanced growth rate.
Abstract: This paper presents an examination of the sustainability of national debt and economic growth, and the growth effects of government debt and income taxation. Results show sustainability of national debt and economic growth under the primary surplus rule. Fiscal policy and balanced growth are compatibly sustainable if and only if the government sets a long-run target debt/GDP (gross domestic product) ratio within a reasonable range. Results also show that a rise in the long-run debt/GDP ratio reduces the balanced growth rate. Based on these two results, the long-run debt/GDP ratio is greater than zero if the government aims to maximize the balanced growth rate.

Journal ArticleDOI
TL;DR: The authors showed that the strict alternative between wage-led and profit-led growth is misguided, and that an expansion of real wages and employment is feasible when enduring incomes policies are established.
Abstract: It has been argued, in neo-Kaleckian growth theory, that profit-led growth regimes are more likely in an open economy, at least in the short run. This paper reconsiders this question by developing a macroeconomic model for the medium run where distribution and inflation, caused by conflicting nominal income claims, influence growth. We show that the strict alternative between wage-led and profit-led growth is misguided, and that an expansion of real wages and employment is feasible when enduring incomes policies are established. Hindrance to these policies is reminiscent of the political opposition to permanent full employment envisaged by Kalecki.

Journal ArticleDOI
Susumu Cato1
TL;DR: In this article, the classical extension theorem established by Szpilrajn, Arrow and Suzumura has been extended by two authors, Kenneth Arrow and Kotaro Suzuki.
Abstract: This paper extends the classical extension theorem established by Edward Szpilrajn (Fundamenta Mathematicae, 16, pp 386–389, 1930) Szpilrajn's theorem states that every quasi-ordering has an ordering extension Because of its usefulness in various themes of economics, it has been applied by many researchers Important generalizations have been presented by two authors, Kenneth Arrow and Kotaro Suzumura, among others First, we provide concise proofs of four extension theorems by Szpilrajn, Arrow and Suzumura We then show an extension of their extension theorems

Journal ArticleDOI
TL;DR: Barberosa-Filho and Taylor as discussed by the authors proposed a simpletheoretical framework to explain and estimate the observed cyclical behavior of wage share and capacity utilization for the US economy.
Abstract: A combination of an investment-driven macroeconomy and a conflict-determined income distributiongives cyclical behavior. Models of wage–price inflation can be nested in the Goodwinian tradition.Endogenoustechnicalchangehasambiguouseffectsonequilibrium:Kaldor–Verdoorneffectsincreasethe wage share’s responsiveness to changes in output, while labor-saving technical change reduces it. 1. INTRODUCTION Economists have sought to explain the interrelation of income distribution,inflation and growth in various ways. Conflict models as presented inRowthorn (1977) and Dutt (1990) attempt to do so by juxtaposing wageearners’ claims and the price setting behavior of firms in such a way as thateach party is aiming at protecting (or extending) its income.The US wage share describes a cyclical movement over the business cycle(see figure 1). Such an empirical observation and/or a close study of Volterra(1931) and Marx led Goodwin (1967) to adapt a predator–prey model withthewageshareaspredatorandtheemploymentratioaspreyasanotherformof exploring the relationship between distribution and growth. In a recentpaper in this journal Barbosa-Filho and Taylor (2006) propose a simpletheoretical framework to explain and estimate the observed cyclical behaviorof wage share and capacity utilization for the US economy. This modelessentially extends the effective demand dynamics of capacity utilization,

Journal ArticleDOI
TL;DR: In this paper, a Kaleckian model is used to explore how far such a model can be said to provide a demand-led view of growth, and the question arises as to the adaptation of the growth rates, and this is examined in terms of the relationship between the demand side and supply side of the economy.
Abstract: A Kaleckian model is outlined to explore how far such a model can be said to provide a demand-led view of growth. The first issue examined is whether demand-determined economic activity can be extended into some form of long-term analysis. The second issue arises from a comparison between the growth rate of the employment and that of the labour force where difference between them leads to rising or falling employment rate. Hence the question arises as to the adaptation of the growth rates, and this is examined in terms of the relationship between the demand side and supply side of the economy.

Journal ArticleDOI
TL;DR: In this article, the authors present a model of an economy with household debt and discuss the conditions under which financial fragility arises, and identify three channels: a debt-deflation effect a la Fisher, a credit-financed consumption boom and an exhilarating debt effect.
Abstract: In this paper, we present a model of an economy with household debt, and discuss the conditions under which financial fragility arises. Financial instability is driven by distributive effects. In addition to the income transfers associated with interest payments, the accumulation of debt feeds back with the distribution of income between labour and capital. The model also gives a central role to banks and credit rationing. Contrary to the existing literature, credit supply does not depend on the characteristics of borrowers, but on those of banks. There is a feedback channel between the health of the financial system and the quantity of credit in the economy. We show that there is a diversity of channels through which financial fragility may arise. We identify three channels: a debt–deflation effect a la Fisher, a credit-financed consumption boom and an exhilarating debt effect.

Journal ArticleDOI
TL;DR: In this article, the authors present a dynamic and monetary model that consistently explains such various phenomena as unemployment, deflation, zero nominal interest rates and excess reserves held by commercial banks, which are commonly observed during the Great Depression in the United States, the recent long run stagnation in Japan and the worldwide financial crisis triggered by the US subprime loan problem of 2008.
Abstract: We present a dynamic and monetary model that consistently explains such various phenomena as unemployment, deflation, zero nominal interest rates and excess reserves held by commercial banks. These phenomena are commonly observed during the Great Depression in the United States, the recent long-run stagnation in Japan, and the worldwide financial crisis triggered by the US subprime loan problem of 2008. We show that an excessive liquidity preference leads to a liquidity trap and thereby generates the phenomena.(This abstract was borrowed from another version of this item.)

Journal ArticleDOI
TL;DR: In this article, the authors focus on the financing of demand out of income and borrowing, a crucial aspect of Kalecki's analysis of investment, and show that if the demand for loans moves procyclically, short-term equilibrium is unstable.
Abstract: This study is devoted to the financing of demand out of income and borrowing, a crucial aspect of Kalecki's analysis of investment. If the demand for loans moves procyclically, short-term equilibrium is unstable. The borrowing of non-financial agents must be checked by the action of central banks. Models in which both procyclical and countercyclical mechanisms are considered provide the basis of monetary macroeconomics. Money is neither endogenous nor exogenous but co-determined by the behaviors of financial and non-financial agents. The succession of phases in which the stability of the short-term equilibrium is ensured or not defines an important aspect of the business cycle.


Journal ArticleDOI
Codrina Rada1
TL;DR: In this article, the authors present a classical model of economic growth which incorporates class conflict and induced technological change to show how demographic changes can affect future income distribution and production relations in industrialized countries.
Abstract: This paper presents a classical model of economic growth which incorporates class conflict and induced technological change to show how demographic changes can affect future income distribution and production relations in industrialized countries. Specifically, I use an extended real wage Phillips curve to account for the effects of a social security tax on income distribution and therefore on capital accumulation and employment. In this framework output growth is determined from the supply side by available savings. Analytical and simulation results indicate that the sustainability of an economy with fast population aging over transient paths hinges upon improvements in labor productivity, hence, the specific mechanism of technical progress in place.

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the economic significance and the dynamic behavior of the Lotka-Volterra model in disaggregative form and found that both the economic importance and dynamic behaviour of the model depend on the eigenvalues of the material input coefficients matrix.
Abstract: This paper investigates Goodwin's Lotka–Volterra model in disaggregative form. Contrary to the known literature, it is found that both the economic significance and the dynamic behaviour of the model depend on the eigenvalues of the material input coefficients matrix.

Journal ArticleDOI
TL;DR: In this article, the authors set forth a Neo-Kaleckian model of capacity utilization and growth with distribution featuring a profit-sharing arrangement, where a given proportion of firms compensate workers with only a base wage, while the remaining proportion do so with a base salary and a share of profits.
Abstract: This paper sets forth a Neo-Kaleckian model of capacity utilization and growth with distribution featuring a profit-sharing arrangement. While a given proportion of firms compensate workers with only a base wage, the remaining proportion do so with a base wage and a share of profits. Consistent with the empirical evidence, workers hired by profit-sharing firms have a higher productivity than their counterparts in base-wage firms. While a higher profit-sharing coefficient raises capacity utilization and growth irrespective of the distribution of compensation strategies across firms, a higher frequency of profit-sharing firms does likewise only if the profit-sharing coefficient is sufficiently high.

Journal ArticleDOI
TL;DR: The authors argue that while there is a tendency towards underconsumption, there could be other counteracting tendencies like the wealth effect of the capitalists or the possibility of debt for the workers.
Abstract: Income distribution plays a crucial role in the Kaleckian models of growth. The recent US experience has seemingly turned the Kaleckian argument on stagnationism on its head. Does it, therefore, render the Kaleckian growth framework redundant? We argue that while there is a tendency towards underconsumption, there could be other counteracting tendencies like the wealth effect of the capitalists or the possibility of debt for the workers. But such a growth process, which is primarily driven by the asset price markets, is, by its very nature, iniquitous and extremely volatile and the downturn is far more severe than the normal business cycles.

Journal ArticleDOI
TL;DR: In this article, the authors look at how factor shares vary over the business cycle and how their movements fit into Kaleckian analysis and show that the economy follows a distributive loop with different adjustment paths during an upswing and downswing.
Abstract: This paper looks at how factor shares vary over the business cycle and how their movements fit into Kaleckian analysis. Heterodox accounts of factor-share movements include both profit-squeeze arguments (procyclical wage share) and underconsumption arguments (counter-cyclical wage share). Empirical evidence gives no decisive support for either account: factor shares may be procyclical and counter-cyclical at different stages of the business cycle. If factor shares vary in such a complex way, then Kaleckian models cannot have a stable distributive curve. The economy instead follows a distributive loop, with different adjustment paths during an upswing and downswing.

Journal ArticleDOI
TL;DR: In this article, the authors investigate arbitrage chains involving four currencies and four foreign exchange traders-arbitrageurs, and show that arbitrage operations when four currencies are present may appear periodic in nature, and not involve smooth convergence to a "balanced" ensemble of exchange rates in which the law of one price holds.
Abstract: This paper investigates arbitrage chains involving four currencies and four foreign exchange trader-arbitrageurs. In contrast with the three-currency case, we nd that arbitrage operations when four currencies are present may appear periodic in nature, and not involve smooth convergence to a \balanced" ensemble of exchange rates in which the law of one price holds. The goal of this article is to understand some interesting features of sequences of arbitrage operations, features which might well be relevant in other contexts in nance and economics.

Journal ArticleDOI
TL;DR: In this paper, a bisector reproduction model with classical features is proposed, in which the capitalists aim at maximizing accumulation and their plans are based on actual productions and expected prices, and effective prices and effective allocations of resources are determined by a market clearing mechanism.
Abstract: We build a bisector reproduction model with Classical features in which the capitalists aim at maximizing accumulation. At variance with gravitation models, it is assumed that they invest their profits in their own industry. Their plans are based on actual productions and expected prices. Effective prices and effective allocations of resources are determined by a market-clearing mechanism. A law on the formation of expectations allows us to define the dynamics of disequilibria, which let appear endogenous self-sustained fluctuations around a long-run path. The long-run rate of growth and the amplitude of the fluctuations depend on the initial conditions.

Posted ContentDOI
TL;DR: In this article, the authors investigate the distributional impact of international trade when goods markets are oligopolistic and firms partially pass-through changes in tariffs into prices and factor costs for differentiated products, showing that trade liberalization raises markups and profit shares in the export industry and lowers them in the import-competing industry, while Stolper-Samuelson effects on real prices of primary factors are attenuated or possibly reversed.
Abstract: This paper investigates the distributional impact of international trade when goods markets are oligopolistic and firms partially pass-through changes in tariffs into prices and factor costs for differentiated products. Trade liberalization raises mark-ups and profit shares in the export industry and lowers them in the import-competing industry, while Stolper-Samuelson effects on real prices of primary factors are attenuated or possibly reversed. An extended model shows how “offshoring” (trade in intermediate goods) can potentially increase mark-ups for oligopolistic producers of final goods. The analysis illuminates why business interests generally support trade liberalization policies today, regardless of their countries’ factor abundance.

Journal ArticleDOI
TL;DR: In this article, two firms compete in selling as well as hiring, where sales levels depend on the hired workforce and the workers determine production levels and profits, and the experimental results show that vanishing cost differences between mobile and immobile workers induce monopolistic hiring but low profits.
Abstract: Two firms compete in selling as well as hiring, where sales levels depend on the hired workforce. There are two types of workers, mobile and immobile, differing in effort costs, and two workers of each type. The principals offer contracts to all workers, who then select an employer. Finally, the workers determine production levels and profits. Our experimental results show: vanishing cost differences between mobile and immobile workers induce monopolistic hiring but low profits. In contrast, large cost differences result in higher profits and allow for various hiring constellations such as one firm hiring only low-cost workers.

Journal ArticleDOI
TL;DR: In this article, the effect of banks' equity on the loan generating process is assessed by using panel data cointegration techniques for the G7 countries, and a feedback relationship exists between banks' loans and equity.
Abstract: This paper adds to the literature on the money supply theory by assessing the effect of banks' equity on the loan generating process. First, a new ‘credit’ multiplier is examined, the so-called ‘equity’ multiplier model. This, in a second stage, is incorporated in a new multivariate lending model. The models are assessed by using panel data cointegration techniques for the G7 countries. According to our results, a feedback relationship exists between banks' loans and equity. Moreover, the factors determining loans are: the aggregate demand, the loan–customer relation, the banks' equity and banks' portfolio adjustments and/or the monetary stance.

Journal ArticleDOI
TL;DR: In this paper, the authors show that the welfare effect of second-best policies such as a subsidy/tax and quality regulation in the case of a monopoly in a network industry depends on the strength of network effects.
Abstract: We show that the welfare effect of second-best policies such as a subsidy/tax and quality regulation in the case of a monopoly in a network industry depends on the strength of network effects That is, focusing on the case in which the network effect is smaller (larger) than the marginal cost of production for the small (large) network effect, it is demonstrated that in the case of a small (large) network effect, an output and a quality-improving subsidy (tax) policy are socially optimal, and a government should commit to a minimum (maximum) quality standard