Keynesian and neo-classical growth models: A sequential analytical approach

Summary By means of Marshall's method of analysing complex dynamic processes an attempt has been made to position Keynesian and neo-classical growth theories. Three periods have been distinguished: the short period, the medium period and the long period. By extending disequilibrium theory to the medium and the long run, models have been developed for each of the three periods. Keynesian growth theory appears essentially a theory of the medium period, neo-classical a theory of the long period. The main differences between the two theories concern the formation of expectations with respect to factor prices and the behaviour of capacity utilisation. In contrast with neo-classical theory the growth process in Keynesian growth theory does not show a tendency to Walrasian growth equilibrium.     

Endogenous capital utilization in a neoclassical growth model

This paper introduces a variable rate of capital utilization and depreciation into a modified Ramsey-type neoclassical growth model via the well-known concept of pure user cost. The optimal utilization rate is found to be determined by the opportunity cost of holding capital or the net real interest rate. As a consequence, this rate may vary in the short run, so total services of capital become a control rather than a state variable. Furthermore, the introduction of a variable utilization rate yields a slower rate of convergence toward the steady state, inducing more persistence in the transitional dynamics. To illustrate how the endogenous choice of utilization acts on the system, some simulations are carried out, including the transition period when there is a temporary fall in the exogenous real interest rate.     

Inventories and real rigidities in New Keynesian business cycle models

Kryvtsov and Midrigan (2008) study the behavior of inventories in an economy with menu costs, fixed ordering costs and the possibility of stockouts. This paper extends their analysis to a richer setting that is capable of more closely accounting for the dynamics of the US business cycle. We find that the original conclusion survives in this setting: namely, the model requires an elasticity of real marginal cost to output approximately equal to the inverse intertemporal elasticity of substitution in consumption in order to account for the countercyclicality of the aggregate inventory-to-sales ratio in the data.     

The BFH payments system in new classical and new Keynesian models

This paper develops a dynamic stochastic model of the BFH payments system with versions consistent with new classical and new Keynesian assumptions about aggregate supply. The new classical version suggests BFH provides perfect inflation and output performance. The new Keynesian version implies more ambiguous consequences.     

Labor market developments in China: A neoclassical view

This paper assesses the applicability of two alternative theories in understanding labor market developments in China: the classical view featuring a Lewis turning point in wage growth versus a neoclassical framework emphasizing rational choices of individuals and equilibrating forces of the market. Empirical evidence based on multiple data sources fails to validate the arrival of the Lewis turning point in China, showing continuous and coordinated wage growth across rural and urban sectors instead. Consistent with the neoclassical view, we find that rural workers expanded off-farm work when mobility restrictions were lifted, interprovincial migration responded to expected earnings and local employment conditions, and returns to education converged gradually to the international standard. These findings suggest major progresses in the integration of labor markets in China.     

Capital utilization in Japan's lost decade: A neoclassical interpretation

This paper attempts to reconcile the controversy regarding Japan's total factor productivity during its slump in the 1990s by clarifying the role of capital utilization. Hayashi and Prescott (2002) emphasized that the decline in the exogenous total factor productivity growth rate was the main cause. However, some empirical studies have also pointed out that the fall in capital utilization rates accounted for a large part of the decline in the total factor productivity growth rate. In this study we incorporate variable capital utilization into a neoclassical growth model, calculate total factor productivity taking into account capital utilization, and simulate the aggregate output and capital-output ratio. We found that although our total factor productivity growth rate in the 1990s is consistent with empirical studies, our simulation can explain the observed data. This result indicates the importance of capital utilization rates as a source of propagation during Japan's depression.     

The insulation argument in neoclassical international economics: A critique

Conclusion In this paper I have tried to prove that the insulation argument for independent fiat currencies is flawed, both because of its lack of sound theoretical foundation, and because of its empirical irrelevance. We have seen that the confusion about essential monetary notions makes the case for monetary independence look intuitively appealing. However, the occurrence of asymmetric trade shocks cannot be a good reason in its favor, for such shocks are more an illusion due to an incomplete knowledge of economic history and to a weak understanding of the adjustment mechanism in a worldwide integrated economy. Moreover, regardless of the importance of such trade changes, devaluation cannot offset the need for relative prices and wages adjustment to match the impact of the change. And by the additional inflationary effects it entails, devaluation harms the structure of production and makes the adjustment even more difficult. Finally, we have seen that even if it is desirable to insulate a region against a foreign shock-when this shock is the manifestation of a boom—it is impossible to do it. The insulation idea should therefore be eliminated from the field of international monetary economics, together with the policies advocated on its behalf.     

Simon Kuipers: An Economist in Search of Rigour and Relevance

At the end of 1997 and after twenty-five years of duty, Professor Simon Kuipers retired as managing editor of De Economist. As a token of indebtedness and gratitude, this article reviews Kuipers' written work. The article focuses on two topics that dominate Kuipers' endeavours. First, his contributions to macroeconomic theory, with particular emphasis on his (neo-)Keynesian approach are examined. Second, Kuipers' contributions to actual monetary and economic policy are discussed, emphasis being placed on his empirical work.     

National and international spillovers from R&D: Comparing a neoclassical and an endogenous growth approach

National and International Spillovers from R&;D: Comparing a Neoclassical and an Endogenous Growth Approach.— Two models where productivity growth is caused by spillovers from R&;D are analyzed using a sample of nine manufacturing industries in six large OECD countries between 1979 and 1991. The first model is based on traditional productivity analysis, the second model on the endogenous growth theory. The empirical results indicate stronger support for the latter. The results suggest that spillovers from R&;D exist within industries, both nationally and internationally, confined to industries that are relatively R&;D-intensive. There is, however, little evidence of spillovers between industries. Finally, FDIs seem to facilitate the diffusion of R&;D results, but the authors do not find any effect on growth from R&;D embodied in intermediate products. JEL no. O32, O40     

Fiscal decentralization in Indonesia: A comment on smoke and lewis

In World Development Smoke and Lewis (1996) describe a local government capability rating effort in Indonesia, and conclude that this approach to decentralization has great potential. Their analysis is bound to a limited set of central level actors, and thus reflects only part of the decentralization debate in Indonesia. Consequently the authors miss the roots of this purportedly “new” approach and overestimate its actual or possible effects. Smoke and Lewis have also not taken into account the importance of a vastly different approach to decentralization, the regional autonomy pilot program, which was inaugurated by the Indonesian Government in April 1995. Providing the broader context to the rating effort, we try to reveal its conceptual and practical limitations and point on the ambiguous role of the rating effort in the decentralization arena in Indonesia.     

Pasinetti and dual equilibria in a post Keynesian model of growth and institutional distribution

In this paper we extend the post Keynesian theory of growthand distribution to a corporate economy. We show that the rateof profits and the distribution between profits and wages areinfluenced by the behavioural parameters of shareholders andfirms, such as the degree of indifference between dividendsand capital gains and the retention ratio, and by long-lastingstock market imperfections. What has been obtained in previousanalyses such as O'Connell (1985, 1995) are special cases ofthese results. The conditions for the existence of what areknown in the literature as Pasinetti and dual equilibria arealso investigated.