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Fernando Ferrari Filho

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Mikael Randrup Byrialsen and Hamid Raza

This paper attempts to analyse the macroeconomic effects of unemployment benefits in a small open economy. We adopt a stock–flow consistent (SFC) approach with an emphasis on the dynamics of the labour market. We numerically solve the model using a combination of estimation and calibration to generate statistics for our key variables, reflecting features of the Danish economy. We then analyse the effects of a fall in the unemployment compensation rate on the economy. The results indicate that a fall in the compensation rate at a macro level leads to a trade-off between a fall in aggregate demand and a rise in net exports. Due to this trade-off, the net effect of a fall in the compensation rate on the aggregate unemployment rate tends to be weak. Our analyses in this paper raise several questions on the existing views regarding unemployment benefits adopted by a large strand of the economic literature.

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Eckhard Hein and Marc Lavoie

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John Grahl and Photis Lysandrou

In February 2015, the European Commission published a Green Paper in which it put forward the goal to ‘build a true single market for capital’ for all European Union member states by 2019. The present paper argues that there is no realistic prospect of achieving this goal given that the Green Paper omits any reference to a formidable impediment blocking a European capital-market union: the German government's stance on debt. The inescapable fact is that this government's reluctance to increase the supply of its bonds is depriving the European capital market of one of the essential ingredients necessary to its enlargement on the one hand and to the efficiency of its operation on the other: the former because capital-market enlargement crucially depends on attracting institutional investors who must hold a substantial proportion of their bond portfolios in the form of safe government bonds; the latter because the efficient functioning of the capital markets crucially depends on the efficiency of the money markets where safe government bonds are by far the most important form of collateral.

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Philip Arestis, Ayşe Kaya and Hüseyin Şen

Using annual data over the period 1980–2014, this paper attempts to provide an answer to the question of whether fiscal consolidation promotes growth and employment in the context of the PIIGGS countries (Portugal, Ireland, Italy, Greece, Great Britain, and Spain) by using the Bootstrap Granger causality analysis proposed by Kónya (2006), which allows testing for causality on each individual country separately, and by accounting for dependence across countries. Our findings indicate that in no country considered does fiscal consolidation promote growth. However, fiscal consolidation negatively affects employment in Portugal and Italy, whereas it positively influences employment in Great Britain. Based on our findings, we may suggest that the effects of fiscal consolidation on employment produce mixed results, varying from country to country.

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Barbara Fritz and Daniela Magalhães Prates

Capital account regulation (CAR) has experienced profound reconsideration since the global financial crisis. This new debate focuses on the macroeconomic gains of regulating international capital flows in terms of reducing external and financial vulnerability, but it does not consider relevant aspects relating to the context in which these regulations are implemented. In this paper, we undertake a comparative analysis of similar types of CAR applied in Brazil during the 1990s and 2000s. Based on this analysis, we conclude that for the design of CAR, which is relevant for its effectiveness, institutional features of both the financial market and the macroeconomic regime, shaped by macroeconomic constraints, are relevant. For the case of Brazil, we conclude that, contrary to the 2000s, the strong preference given to inflation stabilization in the 1990s, together with high external vulnerability, strongly limited the CAR's design of this period.

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Fernando J. Cardim de Carvalho

Much of the criticism directed at austerity programs implemented after the 2007/2008 financial crisis, more forcefully in the eurozone, have relied on the same arguments Keynes and others raised against the (British) Treasury View developed in the 1920s and 1930s. Austerity, however, has been proposed most insistently in the 2010s by European authorities, led by the German Federal Ministry of Finance, the Bundesfinanzministerium (BMF). While the arguments for austerity then and now share some common elements, there are enough original arguments being presented by the BMF to make many of the criticisms ineffective. The paper reconstructs both views, the Treasury's and the BMF's, to show and evaluate their similarities and their differences.

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Servaas Storm

Milton Friedman's presidential address to the American Economic Association holds a mythical status as the harbinger of the supply-side counter-revolution in macroeconomics – centred on the rejection of the long-run Phillips-curve inflation–unemployment trade-off. Friedman (seconded by Edmund Phelps) argued that the long run is determined by ‘structural’ forces, not demand, and his view swept the profession and dominated academic economics and macro policymaking for four decades. Friedman, tragically, put macroeconomics on the wrong track which led to disaster: secular stagnation, rising inequality, mounting indebtedness, financial fragility, a banking catastrophe and recession – and no free lunches. This is Friedman's legacy. We have to unlearn the wrong lessons and return macroeconomics to the right track. To do so, this paper shows that Friedman's (and Phelps's) conclusions break down in a general model of the long run in which productivity growth is endogenous – aggregate demand is driving everything again, short and long.