The Role of Keynesian Policies in Semi-industrialized Countries: theory and evidence from India

This paper examines the relevance of Keynesian policies—interpreted as those policies implied by Keynes's theoretical analysis of unemployment developed in The General Theory—for a subset of developing economies, which are called semi-industrialized countries. It draws on recent contributions in development economics to argue on theoretical grounds that Keynesian policies are relevant for semi-industrialized countries even when they are constrained by capital shortages, stagnant agricultural sectors, and foreign exchange availability. It then discusses the recent development experience of India to illustrate the empirical relevance of some of these theoretical issues.     

Coping with deflation and the liquidity trap in the eurozone: A post Keynesian approach

The ghost of deflation is once again one of the main worries of policymakers. Recently deflation is indeed characterizing the eurozone. The renewed concern about deflation is due in part to the historical association of deflationary episodes with financial crises, recession, stagnation, and even depression. In deflationary conditions, nominal interest rates are more volatile because uncertainty increases and they may come close to their lower limit of zero: If a “liquidity trap” is at work, monetary policy is incapable of stimulating aggregate demand. This article seeks to show that to avoid a “Japanization” of the eurozone it is urgent to implement adequate economic policies in accordance with the post Keynesian approach. The European Central Bank in recent times has tried to do its best to save the situation through espansive monetary policies adopting both quantitative and qualitative easing. Unfortunately, these kinds of policies have tended more to prevent the recession from becoming far worse than enabling a significant fight against deflation and promoting economic recovery. Conventional and unconventional approaches in economic policy are investigated with a critical eye and contrasted with the theoretical insights suggested by post Keynesians.     

Beyond Culture

This paper suggests that Clark's views regarding the Keynesian Revolution illuminate some of the limitations of the Keynesian orthodoxy that developed after the war, bringing more institutional detail and a greater preoccupation with dynamic analysis. Clark developed the multiplier in dynamic terms and coupled it with the accelerator to provide the framework for business cycle theory. His analysis was not formalized and emphasized time lags and non-linearities, similar to Harrod. In addition, Clark was concerned with the inflationary consequences of Keynesian policies and he was dissatisfied with those mechanical interpretations of the income flow analysis, which came to be known as hydraulic Keynesianism. Clark's policy conclusions emphasized the need of balance between employment creation and price stability, and the need of cooperation between social groups.     

The relationship among money supply, banking lending and aggregate demand in China: 1994–2006

Based on the framework of Bernanke & Blinader (1988) and Walsh (2003), this paper provides a concise analysis for relationship among money supply, banking lending and aggregate demand; and makes an empirical test on relationship among China’s money supply, banking lending and aggregate demand from 1994 to 2006 by adopting the single-equation regressive model and vector autoregressive model in terms of Keynesian structural model and monetarism simplified model. The result shows that money supply and banking lending have both played a driving role on real economy. Because of non-market interest rates, Keynesian structural model cannot explain the transmission mechanism of China monetary policies better than monetarism simplified model. __________ Translated from Jingji kexue 经济科学 (Economic Science), 2008, (1): 5–15     

Economic liberalization and wage inequality in the presence of labour market imperfection

This paper is purported to analyze the consequences of liberalized economic policies on the skilled–unskilled wage inequality in the developing countries using a three sector general equilibrium model reasonable for at least a few developing economies. The analysis of the paper has found that the wage inequality rises unambiguously due to a reduction of import tariff from the low-skill manufacturing sector. However, an inflow of foreign capital produces a favourable effect on the wage inequality under a reasonable factor intensity condition. Interestingly, contrary to the common wisdom, a policy of labour market reform may raise the competitive unskilled wage and improve wage inequality under reasonable condition.     

Aggregate demand, the wage gap and unemployment in LDC's

This paper begins with the Todaro framework which relates LDC urban unemployment to the existence of an urban-rural wage gap. An explanation of the wage gap is developed from aggregate demand conditions in the urban sector, providing a Keynesian theory of LDC unemployment. Various policies to alleviate LDC unemployment are considered. Aggregate demand policies are most certain of success when the response of urban output to these policies is low, a situation which has usually been held to invalidate demand policies in LDC's. Import substitution policies promote unemployment and should be reversed or even replaced by rural sector subsidization.     

Imports in Keynesian Models*

This paper examines two main problems relating to the introduction of imports in the simple Keynesian model. First, imports need to be made a function of the aggregate demand components rather than income. Second, unless one assumes that intermediate imports are zero the solution of the simple Keynesian model will provide miltipliers which Overstate the exogenous demand change for domestic product.     

Industrial Policies and the Macroeconomic Effects of Taxation: some comments

Comments are made by Amable & Petit (1996), which examines industrial policies, and by Mair & Laramie (1996), which examines taxation policies. Agreement is found with both papers that modern Keynesian policy has much to offer in these two areas beyond what is generally presumed. Expectations formation is pointed to as one area that both these papers should more explicitly incorporate in their arguments. Similarly, regional considerations and ‘location competition’ are held to be important considerations. The role of finance is pointed to as a fundamental Keynesian consideration that needs to be addressed in effectively formulating industrial and taxation policies.     

Classical and Keynesian unemployment in Austria

The labor market in a macroeconometric model of Austria is used to determine the natural unemployment rate, full-employment (F.E.) output, and the F.E. real wage for 1966–92. Gaps between actual and F.E. variables are examined analytically and historically. Observed unemployment is decomposed into natural, hidden, classical, and Keynesian components. Classical unemployment is associated with the real wage gap, while Keynesian unemployment depends on the output gap. A rise in the natural rate is found to account for almost all of the increase in unemployment between 1966–74 and 1975–81, but an increase in Keynesian unemployment is the major factor in the rise of unemployment between 1975–81 and 1982–92. A fiscal shock to the complete model is found to increase real GDP for a year or two, reducing Keynesian unemployment without an appreciable rise in classical unemployment; the wage gap is eventually increased, however, producing a modest rise in classical unemployment.A lengthier version of this paper was presented at the Annual Meeting of the Austrian Economic Association, Graz, April 14–16, 1993. The generous finacial support of the Jubiläumsfonds of the Austrian National Bank for the research of which this paper is a part is gratefully acknowledged.     

A Model of Structural Change and Openness: Applications to the Argentine economy

This paper describes a dynamic, multisectoral model of a less developed economy in which investment and income distribution policies influence structural change and the pattern of trade. That is, the model considers a Keynesian 'socialised investment' function and distributional policies that, by their effect on demand, could be also described as Keynesian. The model is used to analyse the effects of different policy regimes in the Argentine economy. In an environment characterised by enduring stagnation, investment policies aimed at increasing the degree of economic autonomy and self-sufficiency do not succeed in significantly changing output and trade patterns, and in reducing the degree of openness of the economy. From a long term perspective, however, stagnation is not necessarily a permanent condition. A new environment of higher growth could evolve from the consolidation of a new technological paradigm and the emergence of new socioeconomic norms and mechanisms. In an environment of lower uncertainty and higher efficacy of the investment, model simulation shows that investment policy is quite successful in augmenting the degree of autonomy and self-sufficiency of the economy. Also, income redistribution has a positive impact on income and welfare growth.     

The relative importance of monetary and fiscal policies in selected African countries

This paper examines the relative importance of monetary and fiscal policies in ten African countries using a trivariate vector autoregressive (VAR) model. The analysis is undertaken with annual data from 1960 to 1990 in logarithms first difference form. In five of the ten countries, our empirical results support the monetarist position that monetary policy is more important than fiscal policy. On the other hand, the Keynesian position that fiscal policy is more important than monetary policy is confirmed in the other five countries of the sample. The results of this study suggest that a particular economic philosophy cannot be generalized for African countries. These results may therefore prove useful not only to policy-makers but also to those interested in building macroeconomic models which may have implications for aggregate-demand management.     

我国通货膨胀与通货紧缩的非线性转换

本文应用ESTAR模型对我国通胀的非线性调节和通胀与通缩的非线性转换进行实证研究,研究结果表明我国通货膨胀具有显著的非线性调节,通胀与通缩的转换具有显著的非线性指数转换的特征,这种转换发生在滞后二期,转换的速度显著;我国通胀具有整体稳定性和局部非稳定性,由于我国通胀与通缩的临界水平c为3.3个百分点,表明我国通胀在3%左右的水平上处于非稳定运行状态;进一步,本文所估计的指数转换函数和c,基本准确地揭示了我国通胀的动态随机周期行为特征。本文的结论表明我国货币政策具有总体有效性和相机适宜性。     

凯恩斯主义的理论缺陷及其新的发展

20世纪最具影响力的凯恩斯经济学理论很长时间内一直是西方国家制定经济政策的理论依据,但上世纪70年代以后,由于西方国家普遍出现经济滞胀,凯恩斯主义陷入困境,走向衰落。论述了凯恩斯主义对传统经济学的重大突破及其贡献,指出了凯恩斯主义自身的理论缺陷,阐述了新凯恩斯主义的理论前提及其特征,并分析了新凯恩斯主义经济政策的主要特点。     

The breakdown of the IS–LM synthesis: implications for post-Keynesian economic theory

The monetarist and the new classical economics attack routed the IS–LM version of Keynesian theory and the large scale econometric models from the centre of macroeconomic research. However monetarism and the new classical economics were more successful as a critique of the IS–LM orthodoxy than as a basis for fruitful research and policy analysis.

Post-Keynesian economists also attack the IS–LM orthodoxy, mainly because it misspecified ‘… the economic society in which we actually live’. Post-Keynesians that emphasized financial and labour markets argued that properties of the real world economy made instability normal results ofmarket interactions.

The vacuum in main line theory that developed as the shortcomings of monetarism became evident led to a revival of interest in basic Keynesian propositions. This has spawned what is now labeled a new Keynesian economics. New Keynesian economists conform to the modeling standards set by the new classical rational expectations school but claim to get Keynesian results. To a degree these results are compatible with propositions of post-Keynesian economics.

It is suggested that a convergence between the new and the post-Keynesian economics can be expected, and the result is likely to be fruitful.     

The macroeconomic risks of undesirably low inflation

This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.     

Retailer Market Concentration,Buyer‐Size Discounts and Inflation Dynamics

This study considers the macroeconomic effects of retailer market concentration and buyer‐size discounts on inflation dynamics. During Japan's “lost decades”, large retailers enhanced their market power, thus increasing the exploitation of buyer‐size discounts in the procurement of goods. We incorporate this effect into an otherwise standard New Keynesian model. Calibrating to the Japanese economy during the lost decades, we find that these developments led to a deflation of approximately 0.1% annually.     

Downward nominal wage rigidity: Evidence from Canada 1901–1950

This paper tests for the presence of downward nominal wage rigidity in Canadian wage data for 26 occupations in 38 cities from the first half of the 20th century. The sample is of particular interest as it contains periods with average inflation rates that are close to zero as well as two sharp deflations. Results from a variety of different tests indicate that wage change distributions are consistent with the presence of downward nominal wage rigidity. However, for two subsamples containing sharp declines in output and prices, estimates of the extent of downward nominal wage rigidity are much lower. This suggests that downwards adjustments did occur during times of severe depression and deflation.     

Three macroeconomic syntheses of vintage 1937: Hicks,Haberler, and Lundberg

Abstract

The 1920s and 1930s were years of intensive debate about economic dynamics and stabilisation policies. There was a large variety of explanations of cycles and depressions, and Keynes’ General Theory of Employment, Interest and Money (1936) was pitched against them. In 1937, followed three different attempts to provide synthetic expositions of macroeconomic theory that would deal with the Keynesian challenge: Hicks’ Mr. Keynes and the “Classics”, Haberler's Prosperity and Depression, and Lundberg's Studies in the Theory of Economic Expansion. This paper compares those 1937 syntheses and contrasts them with the “Neoclassical Synthesis” and the current “New Neoclassical Synthesis”.     

Tournaments, minimum wage, and money non-neutrality

To reconstruct the micro-foundation of Keynesian macro-economics, the efficiency wage theory has generally been considered a success in providing a plausible explanation for the existence of involuntary unemployment. However, little has been said about how monetary policy causes fluctuations in aggregate employment and output in the efficiency wage theory. This paper extends Lin and Yang’s [Econ. Inq. 39 (2001) 644] shirking-type efficiency wage model with tournaments to account for money non-neutrality. A distinct feature of our model is that, due to the adoption of tournaments, there will be a hierarchical wage structure rather than a flat wage in the economy. As will be argued, the labor market characterized in this paper is in a sense a reversion to Keynes’ General Theory, but also an improvement upon it.