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Carl Chiarella, Peter Flaschel, Reiner Franke, Ricardo Araujo, Matthieu Charpe, Christian R. Proaño and Andreas Szczutkowski

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Carl Chiarella, Peter Flaschel, Reiner Franke, Ricardo Araujo, Matthieu Charpe, Christian R. Proaño and Andreas Szczutkowski

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Carl Chiarella, Peter Flaschel, Reiner Franke, Ricardo Araujo, Matthieu Charpe, Christian R. Proaño and Andreas Szczutkowski

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Carl Chiarella, Peter Flaschel, Reiner Franke, Ricardo Araujo, Matthieu Charpe, Christian R. Proaño and Andreas Szczutkowski

As a whole this book adds the ‘Keynes’-component (K) to the Goodwinian vision of a ‘MKS-System’. It first provides a reconsideration of prominent past approaches towards the formation of Keynesian macrodynamics. Ultimately it aims to integrate Marx's Distributive Cycle and aspects of Schumpeter's reformulation of socialism and democracy theory, with Keynes' macro-theory of a ‘Tripartite Market Hierarchy’. This regards financial markets as being at the top, followed by goods markets which in turn are followed by the weakest element, the labor markets. It is completed by certain repercussions that influence the central causal nexus of these three fundamental macro-markets in the longer-run.
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Jenny N. Lye and Ian M. McDonald

This paper argues that the application of loss aversion to wage determination can explain the deflation puzzle: the failure of persistently high unemployment to exert a persistent downward impact on the rate of inflation in money wages. This is an improvement on other theories of the deflation puzzle which simply assume downward wage rigidity, namely the hysteresis theory, the lubrication theory and the efficiency wage theory. The paper presents estimates that support the loss-aversion explanation of the deflation puzzle for both the US and Australia. Furthermore, our estimation approach gives a more precise estimate of the potential rate of unemployment than does the natural rate approach and reveals potential rates of unemployment for the US and Australia at the end of 2017 of about 4 per cent and 3.3 per cent respectively.

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Ramaa Vasudevan

This paper explores the evolution of monetary policy at the People's Bank of China (PBoC) in the context of the distinct path China has adopted in fostering the international role of the renminbi. The paper highlights the challenges faced by the PBoC as it seeks to promote the use of the renminbi in international lending in particular, while simultaneously seeking to contain and discipline the inherent instability and potentially disruptive logic of finance. The problem it faces is not simply that of negotiating the impossible trinity, but rather the dilemma posed by its attempt to step out of the shadow of the US and forge an independent global role for the renminbi, while asserting control over the contours of its developing financial sector. The Chinese experiment tests the limits of the capacity of the state to tame finance.

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Richard Senner and Didier Sornette

Neoclassical economic theory views current-account imbalances as the result of (individual) decisions to save more than to invest domestically. Monetary analysis in the Keynesian tradition rejects such approaches and emphasizes that a country's net savings are the result, not the cause, of net selling of goods and services to foreigners. The latter, in turn, depends on global demand patterns and absolute advantages between countries. We complement this Keynesian approach, taking a closer look at the financial account of the balance of payments: a necessary condition for countries to net-sell goods and services to foreigners is the willingness of domestic sector(s) to accumulate net foreign assets. While previous analysis of global imbalances has partially discussed the role of central banks' reserve accumulation it has failed to incorporate the macroeconomic role of sovereign wealth funds (SWFs). We analyse eight surplus countries' external positions and find that the public sector typically purchases and manages significant amounts of foreign assets via both central banks and SWFs. This, in turn, supports current-account surpluses. We then consider the particular case of Switzerland where, contrary to other surplus countries, public-sector purchases of foreign assets had been absent for a long time, yet set in massively after 2008.

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Robert J. Shiller

concept of ‘animal spirits’ or ‘spontaneous optimism’ as a major driving force in business fluctuations was motivated in part by his and his contemporaries' observations of human reactions to ambiguous situations where probabilities couldn't be quantified. We can add that in such ambiguous situations there is evidence that people let contagious popular narratives and the emotions they generate influence their economic decisions. These popular narratives are typically remote from factual bases, just contagious. Macroeconomic dynamic models must have a theory that is related to models of the transmission of disease in epidemiology. We need to take the contagion of narratives seriously in economic modeling if we are to improve our understanding of animal spirits and their impact on the economy.