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Keynes and Macroeconomics After 70 Years

Keynes and Macroeconomics After 70 Years

Critical Assessments of The General Theory

Edited by L. Randall Wray and Matthew Forstater

In this substantial new collection, esteemed Post-Keynesian scholars reassess the relevance of Keynes’s The General Theory to a broad array of topic areas, ranging from the environment, investment finance, exchange rates, and socialism, as well as inquiries into general Post-Keynesian theory.

Chapter 9: Capital Accumulation, Income Distribution, Technical Progress and Endogenous Money in a Post Keynesian Macrodynamic Model

Luciano Dias Carvalho and José Luís Oreiro

Subjects: economics and finance, post-keynesian economics

Extract

Luciano Dias Carvalho and José Luís Oreiro INTRODUCTION The objective of this chapter is to analyze the dynamic path of some macroeconomic variables – in particular, the profit rate, the interest rate and the degree capacity utilization – in a Post Keynesian macrodynamic model of capital accumulation, income distribution and technological progress. In order to do that, we shall present the basic structure of a Post Keynesian macroeconomic dynamic model of the third generation1 whose main features – which distinguish it from other Post Keynesian models – are the great importance given to the technological progress for the determination of long-term dynamics of the economy and its effects over the banking mark-up and interest rates. In fact, banking mark-up is supposed here as dependent on the rate of technological progress. The explanation for this uncommon specification to the Post Keynesian models is the assumption that banking mark-up is determined by banks’ liquidity preference, in accordance to the so-called structuralist view of money supply endogenity (see Pollin, 1991). Changes in a bank’s liquidity position, in turn, are a consequence of a growing demand for finance due to an increasing level of investment expenditures. Since increasing investment is a direct consequence of technological progress, we can use the rate of technological progress as a proxy of the rate at which investment is increasing over time. Thus, when the rate of technological progress receives a positive shock, commercial banks increase the mark-up over the short-term interest rate which is controlled by the central...

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