Eladio Febrero, Jorge Uxó and Fernando Bermejo
Bradley Bordiss and Vishnu Padayachee
We argue in this paper that Keynes's focus shifted from an interest primarily in the world economy up until The Economic Consequences of the Peace (1919), to one focused on the national economy in the 1920s and 1930s, as the world monetary and trade system was unable to deliver full employment to the various countries participating in it. Temin and Vines (2016) argue forcefully that Keynes was interested primarily in the world economy, and we seek in this article to present a view that emphasises Keynes's contribution to national economic policy. Keynes shifted his attention away from the international economic system when it failed to work effectively in the 1920s and 1930s, and towards this economic system in the period 1941–1944, when the time was right to rebuild it. Given the difficulties experienced by the current monetary system, particularly in Europe, we seek to show the value of Keynes's writing on the national economy in the 1920s and 1930s.
Óscar Dejuán and Daniel Dejuán-Bitriá
This paper develops a predator–prey model to explain cycles in credit-led economies. The predator is the part of the financial sector that issues credit money for non-output transactions. It increases the indebtedness ratio and inflates bubbles that eventually have a negative impact on the real rate of growth (the prey). From this basis, we build a couple of models that may lead to self-contained or explosive cycles. Even in the first case, there is a risk of a financial collapse when certain variables move far away from their long-term equilibrium positions. In order to tame the cycle and avoid extreme positions, governments should ban the expansion of credit money for the purchase of assets and introduce permanent checks to risky credit.
Febrero et al. (2018) criticise the balance-of-payments (BoP) view of the European Economic and Monetary Union (EMU) crisis. I have no major objections to most of the single aspects of the crisis pointed out by these authors, except that they appear to underline specific sides of the EMU crisis, while missing a unifying and realistic explanation. Specific semi-automatic mechanisms differentiate a BoP crisis in a currency union from a traditional one. Unfortunately, these mechanisms give Febrero et al. the illusion that a BoP crisis in a currency union is impossible. My conclusion is that an interpretation of the eurozone's troubles as a BoP crisis provides a more consistent framework. The debate has some relevance for the policy prescriptions to solve the eurocrisis. Given the costs that all sides would incur if the currency union were to break up, austerity policies are still seen by European politicians as a tolerable price to pay to keep foreign imbalances at bay – with the sweetener of some European Central Bank (ECB) support, for as long as Berlin allows the ECB to provide it.
In this paper, the post-Kaleckian approach to financialization, which argues that investment of non-financial corporations (NFCs) in real capital assets has been constrained by rising dividend and interest payments, will be criticized based on a Minskyan understanding of investment. It will be suggested that reinvestment of profits in capital assets has decreased because of a decline in quasi-rent expectations induced by depressed demand. The argument will be tested via Granger causality using available US data for the period between 1960 and 2014.
Carlo Cristiano and Maria Cristina Marcuzzo
Keynes the investor has recently attracted the attention of several scholars and quite a few articles have come out in the last six years. A description of Keynes's dealings has emerged, assessing his performance as an investor as superior but not as stellar as had previously been believed. However, overall evaluation of Keynes's performance is still lacking. This paper contributes to this growing literature by filling some of the gaps, especially in relation to Keynes's investment philosophy and economic theory, and by undertaking a more comprehensive review of the available evidence, drawing on some unpublished sources which have not as yet been fully exploited.
In the New Consensus model, when monetary policy is sufficiently sensitive to changes in the rate of inflation, a standard Taylor rule can effectively pin down inflationary expectations and stabilize the economy at practically no output cost. It is often believed that assuming an open or a closed economy does not matter. This view is incorrect, and the result depends critically on the nature of devaluations. When devaluations are contractionary, standard Taylor rules do not work. This result holds in a standard New Consensus model and in an amended version of it. We suggest that a successful inflation-targeting regime for an open economy cannot rely only on the manipulation of a short-term interest rate.
Eladio Febrero, Jorge Uxó and Fernando Bermejo
In a pegged exchange-rate system, a balance-of-payments crisis happens when there is serious mistrust of whether a debtor country holds sufficient international reserves to monetise a capital withdrawal at the ongoing exchange-rate parity. In the eurozone (EZ), doubts that banks and governments of peripheral countries could settle debts when they matured led to a massive capital outflow after the fall of Lehman Brothers and, especially, the first Greek sovereign-debt crisis. This has led some authors to hold that the situation in the EZ is a balance-of-payments (BoP) crisis.
However, the European Central Bank (ECB) offset massive financial capital withdrawals with a huge inflow of reserves to the EZ periphery, making the international reserves constraint irrelevant. This invalidated the BoP view in other authors’ opinion, who pointed out bad bank behaviour and a poor initial institutional design as the alternative root cause for the current mess. This position is known as the monetary sovereign (MS) view.
In this paper, we provide a brief overview of the debate between both sides, with Cesaratto, as a representative for the BoP view, and Lavoie, De Grauwe and Wray, for the MS view, and discuss whether a reconciliation between these two positions can be possible. We step into the discussion to offer two additional arguments in favour of the second view: (i) A currency union requires a single monetary policy, as opposed to a fixed exchange-rate regime; TARGET2 balances combined with refinancing operations are an essential ingredient of monetary policy implementation. (ii) The current situation is more easily understood as another episode of financial instability after banks have granted huge amounts of credit (which they refinanced abroad). The situation got even worse because governments supporting troubled banks in their respective jurisdictions lacked a lender of last resort.