Fiscal space on the eurozone periphery and the use of the (partially) balanced-budget multiplier: The case of Spain

This article adopts the “functional finance” approach to consider the utilization of expansive fiscal policies in the members of the European Monetary Union most affected by high unemployment. As they do not have their own monetary policy, fiscal deficits require the issuing of public debt without the support of the central bank. The authors consequently incorporate the notion of a (partially) balanced-budget expansion to achieve the desired stimulus in gross domestic product (GDP) with the least possible effect on public debt. Their proposal is only a sort of “imperfect” balanced-budget expansion: It is based on the idea that simultaneous increases in public revenue and expenditure can boost GDP, but without any pretension of keeping public deficit unchanged. Specifically, the authors use the case of Spain to show that a more expansive fiscal policy is desirable on economic grounds, and that only institutional constraints prevent it. They do it presenting two alternative scenarios for the coming years and analyzing their different impact on unemployment and fiscal sustainability. The first represents a firm commitment to budget consolidation, whereas the second is based on this “imperfect” application of the balanced budget multiplier. The main conclusion is that a more expansive fiscal policy is perfectly compatible with finance sustainability.     

The ECB During the Financial Crisis. Not so Unconventional!

The European Central Bank's balance sheet has expanded notably, without banks granting more credit, and the overnight interest rate has stayed close to the deposit facility level for long periods of time since the onset of the financial crisis. This appears to go against the logic implicit in the post‐Keynesian Horizontalist approach to monetary macroeconomics, which links reserves to credit and holds that a central bank accommodates the demand for reserves in order to control the overnight interest rate. In this article, we analyze the monetary policy implemented by the ECB since the third quarter of 2008, with a view to studying its implications for monetary theory, concluding that this approach can still explain much of what has happened in the Euro Zone in the last troubled years, despite paradoxically, there being excess reserves and simultaneously accepting that reserves are demand led, and that the ECB has lent them at the official rate while the overnight interest rate has been close to the deposit facility rate. Further, this analysis reveals that mainstream monetary theory has not been very useful, because neither the link between reserves and loans nor the relation between reserves and inflation have worked. This leads us to believe that some transmission channels of the monetary policy implemented by the ECB since late 2014, which can be deemed unconventional, will not perform well.     

The Monetization of Profits in a Monetary Circuit Framework

Abstract

This paper offers an explanation of the realization of profits in money. Following Edward Nell's lead, we place Marx's spheres of production and circulation at the centre of the analysis. Production is represented à la Sraffa–von Neumann while circulation is analysed following the basic insights of the Franco-Italian theory of the monetary circuit. Once production has taken place, money is created by banks ex nihilo and then circulates through certain channels allowing the reproduction of the system and monetizing profits plus the payment of interest on long-term debts within one single circuit. The novelty of our approach lies in the treatment of the financing of investment in fixed capacity.     

Measuring Productivity from Vertically Integrated Sectors

There are many ways to measure productivity. The choice will depend on the suitability of each index to the main purpose the researcher has in mind. Whenever we are interested in 'competitiveness', the proper measure will be the inverse of the total labour embodied in one unit of final product; or, what amounts to the same, the labour employed in the vertically integrated sector corresponding to each final good. A weighted mean of these yields an index of aggregate productivity suitable for measuring social welfare. Another index of aggregate productivity (this one related to the profit rate and potential growth) coincides with the inverse of the maximum eigenvalue of the 'socio-technical matrix'. These indices are computed for the Spanish economy and compared with more conventional ones.