A POST‐KEYNESIAN AMENDMENT TO THE NEW CONSENSUS ON MONETARY POLICY

A common view is now pervasive in policy research at universities and central banks, which one could call the New Keynesian consensus, based on an endogenous money supply. This new consensus reproduces received wisdom: in the long run, expansionary fiscal policy leads to higher inflation rates and real interest rates, while more restrictive monetary policy only leads to lower inflation rates. The paper provides a simple four‐quadrant apparatus to represent the above, and it shows that simple modifications to the new consensus model are enough to radically modify received doctrine as to the likely effects of fiscal and monetary policies.     

Classical and Neoclassical Indeterminacy in One‐shot Versus Ongoing Equilibria

I analyze two connections between neoclassical and classical economics. First, I consider the indeterminacy that arises for both schools: in the neoclassical theories of overlapping generations and of factor pricing and in Sraffa's price theory. Neoclassical indeterminacy occurs only in environments where relative prices can change through time; otherwise, determinacy obtains. Although these results challenge the Sraffian position on indeterminacy, the classical principle that current economic activity is embedded in the past proves to be a powerful insight: it establishes the robustness of factor‐price indeterminacy and casts doubt on the importance of overlapping‐generations indeterminacy. Second, I argue that recent claims that capital‐theoretic paradoxes arise in intertemporal general equilibrium modes, not just in aggregative theory, cannot be validated.     

MARX‐BIASED TECHNICAL CHANGE AND THE NEOCLASSICAL VIEW OF INCOME DISTRIBUTION

This paper empirically tests two competing views about capital–labour substitution at the aggregate level in capitalist economies: the classical model with Marx‐biased technical change versus the neoclassical model. Following Foley and Michl (1999 ), the classical viability condition of technical change is used to draw out two different hypotheses about the profit share in national income corresponding to the two competing models. A stochastic version of the viability condition is empirically tested with data from the Extended Penn World Tables 2.1 using a simple cross‐country estimation strategy. It is found that the data overwhelmingly rejects the neoclassical theory.     

STOCHASTIC VOLATILITY MODELS AND THE PRICING OF VIX OPTIONS

In this paper, we examine and compare the performance of a variety of continuous‐time volatility models in their ability to capture the behavior of the VIX. The “3/2‐ model” with a diffusion structure which allows the volatility of volatility changes to be highly sensitive to the actual level of volatility is found to outperform all other popular models tested. Analytic solutions for option prices on the VIX under the 3/2‐model are developed and then used to calibrate at‐the‐money market option prices.     

The money creation process: A theoretical and empirical analysis for the United States

The aim of this paper is to assess—on both theoretical and empirical grounds—the two main views regarding the money creation process, namely the endogenous and exogenous money approaches. After analysing the main issues and the related empirical literature, we will apply a vector autoregression model and a vector error‐correction model methodology to the United States for the period 1959–2017 to assess the causal relationship between a number of critical variables that are supposed to determine the money supply, that is, the monetary base, bank deposits, bank loans and the nominal level of economic activity. The empirical analysis supports several propositions related to the endogenous money approach. In particular, it shows that for the United States in the years 1959–2017 (a) bank loans determine bank deposits and (b) bank deposits in turn determine the monetary base. Our conclusion is that money supply is mainly determined endogenously by the lending activity of commercial banks and the nominal level of economic activity.     

NNS模型及其对宏观经济学的新发展

20世纪80年代以来，新兴新古典综合（NNS）模型被广泛运用于解释具有微观基础的宏观经济问题。本文考察NNS模型的总体研究工作，论证其对于当下宏观经济学的新发展及意义。NNS模型分析性地说明：价格稳定将继续作为好的货币政策的基础，保证货币政策达到家庭福利最大化；在实际操作中，通过锚定预期未来通货膨胀，利率政策通过促进价格稳定的可信性强化了杠杆作用，导致利率政策在最大程度上促进了当前的总需求；只要现金优先的解释暗示了如果价格下降，产出只能增加，那么可以发现，扩张型的财政政策必然会在货币外生的体制下产生通货紧缩的后果。NNS模型对于中国经验具有一定的解释力。     

AN EQUILIBRIUM GUIDE TO DESIGNING AFFINE PRICING MODELS

The paper examines equilibrium models based on Epstein–Zin preferences in a framework in which exogenous state variables follow affine jump diffusion processes. A main insight is that the equilibrium asset prices can be computed using a standard machinery of affine asset pricing theory by imposing parametric restrictions on market prices of risk, determined inside the model by preference and model parameters. An appealing characteristic of the general equilibrium setup is that the state variables have an intuitive and testable interpretation as driving the consumption and dividend dynamics. We present a detailed example where large shocks (jumps) in consumption volatility translate into negative jumps in equilibrium prices of the assets as agents demand a higher premium to compensate for higher risks. This endogenous “leverage effect,” which is purely an equilibrium outcome in the economy, leads to significant premiums for out‐of‐the‐money put options. Our model is thus able to produce an equilibrium “volatility smirk,” which realistically mimics that observed for index options.     

Indeterminacy and fundamental reduced form representations of DSGE models

Dynamic stochastic general equilibrium (DSGE) models are known to exhibit indeterminacy—that is, equilibrium nonuniqueness—under realistic parameterizations. This paper studies how the potential for indeterminacy impacts on the possibility of recovering a DSGE model's structural shocks via empirical vector autoregressions (VARs), which in turn requires the model's reduced form representation to be fundamental. By means of a simple example, we first establish that indeterminacy is neither necessary nor sufficient for (non)fundamental representations to arise. We then investigate the relationship between indeterminacy and nonfundamentalness in the context of a general class of linearized DSGE models, which nests the New Keynesian framework as a special case. It is shown that an indeterminate equilibrium model may generically admit a fundamental moving average representation, even when its determinate counterpart always involves nonfundamentalness. As a main implication, checking for existence of a VAR representation of a DSGE model's equilibria cannot be regarded as an indirect test for the indeterminacy hypothesis.     

On Decreasing Marginal Impatience,Stability and Monetary Policy in a Sidrauskian Economy

This paper analyzes the long‐run dynamics with which decreasing marginal impatience (DMI) is consistent with a saddle‐path equilibrium in a Sidrauskian economy. With exogenous growth, this occurs with a strong substitutability between capital and money. Otherwise, diminishing returns to capital have to be stronger than in a nonmonetary setting if capital and money are complements. With endogenous growth, saddle‐path stability ensues when the rate of time preference—the rate at which “impatience” is increasing—exceeds the rate at which the real economy is growing along a balanced growth path. Two monetary implications also emerge. One, DMI can be consistent with both a negative and positive long‐run inflation‐growth nexus. Two, under capital‐money substitutability, the Friedman optimal rule might even fail to hold.     

Monetary Dynamics of Inflation in China

This paper investigates both the short‐run and the long‐run relationships between monetary growth and inflation in China between 1980 and 2010. We construct multivariate dynamic models based on Friedman’s quantity theory of money (but permitting money to be endogenous) and Meltzer’s monetarist model. The empirical results provide robust evidence that there is a bilateral causal relationship between monetary growth and inflation as well as between monetary growth and output growth. An indirect and implicit causal relationship between monetary growth and inflation is found through the asset inflation channel. There are also long‐run equilibrium relationships between money stock, price index and other relevant variables. The present paper further provides a historical exploration of the mechanism of the monetary dynamics of inflation in China over the underlying period. We conclude that the monetary growth rule is likely to be the most promising policy orientation for China to manage its inflation.     

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.     

The Neoclassical Approach to Induced Technical Change: From Hicks to Acemoglu

This survey article provides a critical overview of the development of the neoclassical theory of induced technical change. From Hicks's introduction of the concept in his Theory of Wages up to the recent literature the strengths and weaknesses of the proposed models and the contexts in which they have been developed are outlined. It is shown that induced technical change has been invoked to explain various long‐run distribution conundrums which could not be explained with standard neoclassical growth theory. The importance of induced technical change for the long‐run distribution of income cannot be doubted. Nevertheless, we show that neoclassical models of induced technical change are still unsatisfactory in a number of respects.     

A synthesis of the Heckscher-Ohlin and the neoclassical models of international trade

In this paper we provide a synthesis between the neoclassical and the Heckscher-Ohlin models of international trade by developing the properties of a two-sector, three-factor model. The neoclassical model, where one or more factors are specific to one or both industries, and the Heckscher-Ohlin model, where two (or all factors) are nonspecific, then can be analyzed as special cases of our model. The theorems by Rybczynski, Stolper and Samuelson, Jones and Chipman, among others, are reexamined in terms of our generalized model.     

EQUAL ORGANIC COMPOSITION OF CAPITAL AND REGULARITY

Equal organic composition of capital (EOCC) is shown to be a necessary and sufficient condition for constant relative prices in no‐joint production technologies with neoclassical production functions. It is then proved that such neoclassical technologies are regular (which implies that consumption is well behaved across steady‐state equilibria). Regularity is also a necessary and sufficient condition for near aggregation (which implies an aggregate production function with all but one of the usual neoclassical properties). Except perhaps for some fluke cases, the existence of an aggregate production function with all of the usual neoclassical properties (full aggregation) requires the stronger EOCC property.     

Neoclassical growth model with two fixed delays

“Delay” has been considered as one of destabilizing factors in economic dynamics for a long time. Dynamic macroeconomics is concerned with explaining growth and fluctuations. This paper shows how various dynamics involving cyclic fluctuations can emerge in the standard neoclassical growth model when two distinct delays, a delay in production and a delay in depreciation, are explicitly taken into account. We first confirm that the production delay has a stabilizing effect and the depreciation delay has a destabilizing effect in a one‐delay model. We then determine the stability switching curve analytically in the two delay model. It is shown that cyclic fluctuations emerge via Hopf bifurcation when stability is lost. It is also found that stability loss and gain repeatedly occur. Numerical examples verify the theoretical results when the Cobb‐Douglas production function is adopted.     

WAGE POLICY IN AN OPEN‐ECONOMY KALECKI–KALDOR MODEL: A SIMULATION STUDY

This paper discusses a Post‐Keynesian model of income, production and trade. The one‐country, one‐sector model features Kaleckian investment demand, Kaldorian productivity and a labor market module based on a wage–price spiral. The model is first presented for a closed economy with exogenous real wages; second, for a closed economy with endogenous real wages; third, for an economy open to trade with endogenous real wages. Simulations with different calibrations show key characteristics of the model. Monte Carlo simulations over reasonable parameter ranges shed some light on the effectiveness of wage policies in open economies.     

What drives long-term capital flows? A theoretical and empirical investigation

What drives capital inflows in the long run? This paper illustrates how capital movements conform surprisingly well to the predictions of a neoclassical model with credit constraints. The most intriguing prediction of this class of models is that, contrary to a pure neoclassical model, domestic saving should act as a complement rather than a substitute to capital inflows. Nevertheless, this class of models keeps the neoclassical prediction that capital should flow to countries where it is most scarce. Using foreign debt data from 1970 to 1998, I find qualitative and quantitative evidence that supports these predictions.     

The performance of VIX option pricing models: Empirical evidence beyond simulation

We examine the pricing performance of VIX option models. Such models possess a wide‐range of underlying characteristics regarding the behavior of both the S&P500 index and the underlying VIX. Our tests employ three representative models for VIX options: Whaley ( 1993 ), Grunbichler and Longstaff ( 1996 ), Carr and Lee ( 2007 ), Lin and Chang ( 2009 ), who test four stochastic volatility models, as well as to previous simulation results of VIX option models. We find that no model has small pricing errors over the entire range of strike prices and times to expiration. In particular, out‐of‐the‐money VIX options are difficult to price, with Grunbichler and Longstaff's mean‐reverting model producing the smallest dollar errors in this category. Whaley's Black‐like option model produces the best results for in‐the‐money VIX options. However, the Whaley model does under/overprice out‐of‐the‐money call/put VIX options, which is opposite the behavior of stock index option pricing models. VIX options exhibit a volatility skew opposite the skew of index options. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark31:251–281, 2011     

Option pricing in the moderate deviations regime

We consider call option prices close to expiry in diffusion models, in an asymptotic regime (“moderately out of the money”) that interpolates between the well‐studied cases of at‐the‐money and out‐of‐the‐money regimes. First and higher order small‐time moderate deviation estimates of call prices and implied volatilities are obtained. The expansions involve only simple expressions of the model parameters, and we show how to calculate them for generic local and stochastic volatility models. Some numerical computations for the Heston model illustrate the accuracy of our results.