Low‐Frequency Volatility of Yen Interest Rate Swap Market in Relation to Macroeconomic Risk*

Using ‘low‐frequency’ volatility extracted from aggregate volatility shocks in interest rate swap (hereafter, IRS) market, this paper investigates whether Japanese yen IRS volatility can be explained by macroeconomic risks. The analysis suggests that this low‐frequency yen IRS volatility has strong and positive association with most of the macroeconomic risk proxies (e.g., volatility of consumer price index, industrial production volatility, foreign exchange volatility, slope of the term structure and money supply) with the exception of the unemployment rate, which is negatively related to IRS volatility. This finding is fairly consistent with the argument that the greater the macroeconomic risk the greater is the use of derivative instruments to hedge or speculate. The relationship between the macroeconomic risks and IRS volatility varies slightly across the different swap maturities but is robust to alternative volatility specifications. This linkage between swap market and macroeconomy has practical implications since market makers and hedgers use the swap rate as benchmark for pricing long‐term interest rates, corporate bonds and various other securities.     

UNCERTAINTY AND EXPECTATIONS IN SHACKLE'S THEORY OF CAPITAL AND INTEREST

This paper is focused on the macroeconomic aspects of Shackle's theory of capital and interest. The paper highlights the strengths and weaknesses of this theory. Among the strengths is Shackle's treatment of historical time, expectations and their disappointment, ex ante and ex post magnitudes, macroeconomic equilibrium and disequilibrium. Among the weaknesses is Shackle's failure to grasp the difference between the theory of interest as such and the theory of the money rate of interest as well as the difference between the theory of capital in the context of logical time (the old Austrian approach) and the theory of capital in the context of historical time (Hayek's and Shackle's preferred approach).

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THE IMPORTANCE OF THE RETENTION RATIO IN A KALECKIAN MODEL WITH DEBT ACCUMULATION

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.     

Monetary control in open economies: National versus global monetarism

For about a decade the central banks of the leading Western industrial nations have set annual money supply targets.¹ Despite the common monetarist tone of their strategies, each central bank uses its own definition of the money supply relating solely to its national territory (national monetarism), thereby laying itself open to criticism from those who, like Professor Ronald McKinnon, hold that nationally oriented money supply control has had its day and instead advocate management of the world money supply (global monetarism).² The following article tests the arguments of the proponents of an international quantity theory and examines whether domestically oriented money supply management is really out of tune with the times.     

Preliminary Evidence for the Neurophysiologic Effects of Online Coupons: Changes in Oxytocin,Stress, and Mood

Coupon use saved consumers $2.9 billion on packaged goods in 2012 with over 90 million Americans using online coupons. Besides saving money, why is coupon use so widespread? An experiment was run where participants (N = 90) shopped online and one‐half received a coupon worth $10. It was found that those who received a coupon had a 14% increase in oxytocin (OT), an 8% decrease in the stress hormone adrenocorticotropin, a 4% decrease in heart rate (HR), a 27% decrease in respiration, a 4% decrease in skin conductance levels, and a 90% increase in high‐frequency HR variability. These factors showed almost no change for those who did not receive a coupon. The findings indicate that coupons elicit physiological reactions similar to having a positive social interaction. In addition, self‐reported happiness correlated with the change in OT (r = 0.43). These findings provide new insights into why online coupon use is so pervasive.     

INTEREST RATE,DEBT, DISTRIBUTION AND CAPITAL ACCUMULATION IN A POST‐KALECKIAN MODEL

In the present paper we extend Lavoie's (Metroeconomica, 1995, vol. 46, pp. 146–177) ‘Minsky–Steindl’ model, building our analysis on a Kaleckian distribution and growth model which has already taken into account distribution effects of interest rate variations on the short‐run equilibrium. Into this model the effects of debt and debt services are explicitly introduced and the effects of interest rate variations on the short‐ and the long‐run equilibrium are derived. It is shown that the effects of interest rate variations on the endogenously determined equilibrium values of the model not only depend on the parameter values in the saving and investment functions but also on the interest elasticity of distribution and on initial conditions with respect to the interest rate and the debt–capital ratio.     

A division of the capitalist class and the market for money capital

In a one‐commodity economy populated by capitalists equipped with equal endowment but with heterogeneous linear production technology, a division of the capitalist class emerges endogenously. The capitalists with relatively weak technology, yielding the profit rate lower than the interest rate, become a money capitalist (lender), whereas the capitalists with relatively strong technology, yielding the profit rate greater than the interest rate, become an industrial capitalist (borrower). The equilibrium interest rate is derived by the associated demand and supply relation. From this setup of the model follow two essential relationships Marx establishes between the average profit rate and the interest rate: (a) that the profit (rate) sets a maximum limit of interest (rate), and (b) that the two rates are correlated in the long‐run. Lastly, the profit rate of financial sector is less than that of industrial sector due to the basic setup of the model where the industrial sector uses leverage to amplify the underlying capital profit rate, whereas the financial sector lacks intermediation technology, which would have enabled it to borrow profitably.     

Real and Financial Sector Interaction Under Liberalization in an Open Developing Economy

A short‐run model incorporates instantaneous portfolio equilibrium with macroeconomic flows to clarify the structure of real–financial sector interactions. If equity and foreign exchange markets are introduced in structuralist theories of asset markets in developing countries, the key result that a fall in money supply raises the rate of inflation now holds only under special conditions on partial derivatives. But there is a tendency for interest rates to rise and for fluctuations in asset prices. Fuller integration of asset markets moderates these fluctuations. Outcomes are stable in spite of the generalized complementarity distinguishing equity markets from loan markets. Expectations play a major role. Implications for policy are to link domestic interest rates to foreign, remove artificial barriers to market integration, and stimulate demand as well as supply.     

中美贸易不平衡的均衡、错位及其矫正的实证研究

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Endogenous Money: What it is and Why it Matters

Endogenous money is widespread in economic theory. The post‐Keynesian contribution is identification of a causal link between bank lending and the money supply. Though driven by macroeconomic concerns, the post‐Keynesian debate has reduced to a microeconomic debate over the role of financial intermediaries in the accommodation process. In the IS–LM model endogenous money flattens the LM. This misses its substantive significance which is the discrediting of monetarist money supply policy rules and monetarist critiques of central banking, its identification of the key role of credit, and its provision of a credit‐driven theory of the business cycle.     

影响我国广义货币需求因素的实证分析

运用现代货币数量理论,以我国1996—2009年货币数据为样本．建立长期广义货币需求函数进行实证分析,其结果表明：广义货币需求的长期收入弹性均大于1;长期货币需求的利率弹性都小于货币需求的收入弹性;预期通货膨胀率对广义货币需求影响显著,呈现负向变动关系,即随着通货膨胀预期上升,对货币需求减少。这一结论同时表明。我们可根据货币需求之间的弹性关系检验货币政策的有效性,以达到控制货币供给量,完善货币需求体系。维持物价指数的相对稳定的目的。     

Mixed Equilibrium,Collaborative Dominance and Burning Money: An Experimental Study

We experimentally study three aspects of $2\times 2$ one-shot games with collaboratively dominant strategies: if subjects play according to the mixed Nash equilibrium; if the collaborative equilibrium has a focal point property; and if the burning money mechanism stimulates a collaborative behavior. First, our results show that players do not seem to play according to the mixed Nash equilibrium and that the collaborative equilibrium does not seem to have focal point properties. In fact, the subjects seem to prefer less risky strategies when compared to efficient ones. Our results also show that a burning money mechanism only helps players to collaborate when it transforms a collaborative profile of strategies into a collaborative equilibrium. This fact is justified because other burning money mechanisms will only help collaboration if the subjects were playing according to de mixed Nash equilibrium. Furthermore, even when burning money mechanisms improved the collaboration rate, such rate’s increase was smaller than the expected by the mixed Nash equilibrium.     

MODELING STABILIZATION POLICIES IN A FINANCIALLY UNSTABLE ECONOMY

A non‐linear macrodynamic model is presented here to study possible stabilization policies in a financially unstable economy. Three policy rules will be considered, namely the interest rate rule (also called Taylor rule), the money supply rule and the fiscal policy rule. It will be shown that the interest rate rule can be used to stabilize a financially unstable economy on a ‘desired’ growth path. However, when the economy falls into a ‘liquidity trap’, the interest rate rule is ineffective, and therefore the fiscal policy rule should be employed. We also find a rule of money supply that can deal with the problem of government debt while the rest of the economy can still be stabilized on the ‘desired’ growth path.     

An explicit partial‐equilibrium model to justify the Generalized Marshall‐Lerner condition (GML)

Robinson's derivation of the Marshall‐Lerner condition (ML) is more general in that she considers a situation where initially the trade balance is not in equilibrium with the incorporation of the supply curves of exporters. This paper examines a partial equilibrium analysis of a country's imports and exports markets within a theoretical model which considers both the demand and supply sides in these two internationally traded‐goods markets. The aim here is to show explicitly how the Generalized Marshall‐Lerner condition (GML) of Robinson can be obtained. We examined the two effects of the nominal depreciation of the domestic currency on the trade balance: the volume effect and the value effect and how they counterbalance each other. We found that the standard Marshall‐Lerner condition (ML) was not sufficient when the trade balance was initially in deficit and it was also not necessary if the trade balance showed an initial surplus. Moreover, this study provides a new interpretation for Robinson’ sufficiency condition where the trade balance must improve following a nominal depreciation of domestic currency when the elasticity of foreign demand exceeds the ratio of imports to exports. This paper also examines the situation of a small open economy which could not influence the world prices where the foreign demand for exports and the foreign supply of exports are infinitely large. Finally, there is a discussion on two policy implications for exchange rate regulation: the amount of devaluation that is necessary to improve a given trade imbalance as a governments intervention and additional support for the slow improvement of the trade balance in the short run after a devaluation policy known as the J‐Curve effect.     

Redistribution in a Neo‐Kaleckian Two‐country Model

We investigate the interaction between demand‐driven growth and income distribution in open economies, by combining expenditure‐switching and demand spillover effects in a neo‐Kaleckian two country model. First, we specify elasticities of wage share and real exchange rate to the money wage relative to labor productivity, in order to precisely describe the distributive pass‐through from money wages to the labor share and the real exchange rate. Second, we analyze the demand effects of an increase in the money wage for given labor productivity (a redistribution towards labor) in both Home and Foreign country, as well as globally. We derive closed form results for two identical countries. These results indicate that redistribution towards labor at Home: (i) always increases growth globally if Home is wage‐led, but can lead to lower growth at Home relative to Foreign; and (ii) will always imply lower growth at Home relative to Foreign if Home is profit‐led, but can still be growth‐enhancing at Home. Thus, to the extent that countries are concerned with their relative economic performance, a fallacy of composition can emerge. Numerical simulations suggest that these fallacies could indeed occur. As a consequence, ‘returns to coordination’ over international labor policies might be substantial.     

Bond Rate,Loan Rate and Tobin's q in a Temporary Equilibrium Model of the Financial Sector

The paper sets up a portfolio model of the financial sector with markets for equity, government bonds, money and debt. The comparative statics of the temporary equilibrium are studied analytically and numerically. Subsequent simulations explore the reactions of financial markets in response to stylized oscillations of some of the exogenous variables. These include economic activity, income distribution, inflation, investors' sentiment, and banks' perceived bankruptcy risk of firms. Special emphasis is put on the resulting cyclical pattern of Tobin's q and the interest spread between loan rate and bond rate.     

Disagreement in a Multi‐Asset Market

This paper provides a simple framework to study the effect of disagreement in a multi‐asset market equilibrium by considering two agents who disagree about expected returns, variances, and correlation of returns of two risky assets. When agents' subjective beliefs are characterized by mean preserving spreads of a benchmark homogeneous belief, we show that the effect of the disagreement does not cancel out in general and the effect in a multi‐asset market can be very different from a single asset market. In particular, the market risk premium can increase and the risk‐free rate can decrease significantly even when the market is overoptimistic and overconfident.     

Real and financial crises in the Keynes–Kalecki structuralist model: An agent‐based approach

Agent‐based models are inherently microstructures—with their attention to agent behavior in a field context—and only aggregate up to systems with recognizable macroeconomic characteristics. One might ask why the traditional Keynes–Kalecki or structuralist (KKS) model would bear any relationship to the multi‐agent modeling approach. This paper shows how KKS models might benefit from agent‐based microfoundations, without sacrificing traditional macroeconomic themes, such as aggregate demand, animal spirits and endogenous money. Above all, the integration of the two approaches gives rise to the possibility that a KKS system—stable over many consecutive time periods—might lurch into an uncontrollable downturn, from which a recovery would require outside intervention. As a by‐product of the integration of these two popular approaches, there emerges a cogent analysis of the network structure necessary to bind real and financial agents into an integrated whole. It is seen, contrary to much of the existing literature, that a highly connected financial system does not necessarily lead to more crashes of the integrated system.