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Peter Temin and David Vines

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Adrien Faudot

We aim here to study the frame within which the US dollar circulates, while questioning the role of the main operators which constitute the cross-border dollar payments architecture. The current dollar standard, however, allows the country which issues the currency and centralizes its payment system, through central-bank money emissions, to wield it as a political weapon and as a means to reach political standardization. Envisioning money as a payment system, this paper sheds light on the flaws inherent in the dollar payment system by emphasizing its asymmetrical nature and its reliance on a national payment system rather than on a truly international one.

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Theodore Mariolis and George Soklis

This paper estimates the ‘static Sraffian multiplier’ for the Greek economy using data from the Supply and Use Table for the year 2010. It is found that (i) an effective demand management policy could be mainly based on the service sector; and (ii) the whole economic system, and especially its industry sector, is heavily dependent on imports. The results seem to be in accordance with the observed deep recession of the Greek economy and, furthermore, suggest that a change in its intersectoral structure is necessary.

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Marc Lavoie

Misguided economics policies relying on an unrealistic macroeconomic theory that denied the possibility of a crisis are at the origins of the global financial crisis. The goal of the present paper is to recall how the end of the Great Moderation has been interpreted by the advocates of mainstream economics, and how they have questioned their own macroeconomic theories as a consequence of what happened during and after the financial crisis. There is thus a need to reconsider most aspects of mainstream theory. In particular, the crisis has once more demonstrated that potential output is influenced by aggregate demand – a phenomenon associated with hysteresis, which also questions concepts such as the natural rate of interest and crowding-out effects.

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Colin Rogers

The new macroeconomics emerged from the new classical counter-revolution against Keynesian economics in the 1970s. Today it is regarded as the dominant form of macroeconomic analysis despite the fact that it proved incapable of anticipating or understanding the global financial crisis (GFC) of 2007–2009 and that it was based on well-known conceptual errors. The new macroeconomics is based on Walrasian/Arrow–Debreu general equilibrium microeconomic foundations that preclude any role for money, banks, finance or governments. Attempts to integrate these institutions into microfounded general equilibrium models where no such functions are required represents a misapplication of the Walrasian/Arrow–Debreu model and leads only to confusion. The conceptual errors that existed before the GFC continue to go unrecognised or unacknowledged and undermine the post-GFC attempts to correct what were perceived to be limitations of the theory. Today the new macroeconomics has no sound economic foundations, microeconomic or macroeconomic; it has no clothes.

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Apostolos Fasianos, Diego Guevara and Christos Pierros

This paper explores the process of financialization from a historical perspective during the course of the twentieth century. We identify four phases of financialization: the first from the 1900s to 1933 (early financialization), the second from 1933 to 1940 (transitory phase), the third between 1945 and 1973 (de-financialization), and the fourth period picks up from the early 1970s and leads to the Great Recession (complex financialization). Our findings indicate that the main features of the current phase of financialization were already in place in the first period. We closely examine institutions within these distinct financial regimes and focus on the relative size of the financial sector, the respective regulation regime of each period, the intensity of the shareholder value orientation, as well as the level of financial innovations implemented. Although financialization is a recent term, the process is far from novel. We conclude that its effects can be studied better with reference to economic history.

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Sunanda Sen and Zico Dasgupta

Financialisation creates space for transactions in the financial sector of economies, and, in doing so, helps to raise the share of financial assets in the portfolios held by market participants. Largely driven by deregulation, the process works to make financial assets relatively attractive as compared to other assets, by offering both better returns and potential capital gains. Against the backdrop of the prevailing analysis of corporate investments under financialisation in the advanced economies, this paper attempts to analyse the pattern of investment by corporates in an emerging economy like India during the 2000s. By analysing the sources and the use of funds of India's corporate sector in further detail, this paper highlights a similar phenomenon of financialisation in the Indian economy which, ceteris paribus, adversely affected real investments during the 2000s along with a process of Ponzi financing during the post-crisis period.

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Junji Tokunaga and Gerald Epstein

Global financing patterns have been at the center of debates about the global financial crisis in recent years. The ‘global saving glut’ (GSG) view, a prominent hypothesis, attributes the emergence of the global financial crisis to an excess of saving over investment, mirroring the current-account surplus, in emerging market countries. Crucially, according to this view, the financial crisis was triggered by an external and exogenous driver, not the shadow banking system in advanced countries which was the epicenter of the financial crisis. Instead, we argue that the global financial crisis was inherently caused by the endogenously dynamic process of balance-sheet expansion at a handful of large complex financial institutions (LCFIs) in the US and Europe. Importantly, this process was facilitated by the endogenous finance of the global dollar in the shadow banking system in the 2000s before the financial crisis. The endogenous finance of the global dollar became highly elastic during 2004–2006, accelerating the dynamically overstretched nature of balance sheets at LCFIs that contributed to the build-up of global financial fragility. Thus, the supreme position of the US dollar as a debt-financing currency in the shadow banking system, underpinned by the dominant role of the dollar in the development of new financial innovations and instruments, was an important, but underappreciated, driving force in this endogenously dynamic and ultimately destructive process.