This paper derives firms’ desired rate of utilization from an explicit maximization of a conjectured rate of profit at the micro level. Invoking a strategic complementarity, desired utilization is thus an increasing function of not only the profit share but also the actual utilization. Drawing on recent empirical material and a straightforward functional specification, the model is subsequently numerically calibrated. In particular, this ensures a unique solution for a steady-state position in which the actual and the endogenous desired rates of utilization coincide. On the other hand, it turns out that the anticipated losses of firms by not producing at the desired level are rather small. Hence there may be only weak pressure on them to close a utilization gap in the ordinary way by suitable adjustments in fixed investment. It is indicated that this finding may serve Kaleckian economists as a more rigorous justification for viewing their equilibria as pertaining to the long run, even if they allow actual utilization to deviate persistently from desired utilization.
José A. Pérez-Montiel and Carles Manera Erbina
This paper tests the main postulates of the Sraffian supermultiplier model for the case of 16 European economies during the period 1995–2018. We adopt the methodology of Girardi and Pariboni (2016) and extend it to a panel framework. We apply panel unit root, cointegration, and causality tests that are robust to endogenous regressors, cross-sectional dependence and heterogeneity across countries. Our results are supportive of the Sraffian supermultiplier model. In a heterogeneous panel framework, autonomous demand and output follow a long-run equilibrium relationship and there exists panel long-run causality that goes unidirectionally from autonomous demand to output. We also empirically verify the investment accelerator (the mechanism that enables the dynamic stability of the model) by confirming the existence of same-sign panel causality running unidirectionally from the growth rate of autonomous demand to the investment share. Our results call for national economic policies aimed at promoting the components of autonomous demand that act as locomotives of growth in each country.
Thomas I. Palley
Applying previously unused regional data to the problem of wage- versus profit-led growth, this paper estimates a demand-and-distribution system for a panel of US states for the years 1974 to 2014. Using variation in minimum-wage policy across states as an instrument for the labor share, I find that – at a regional level – the United States is strongly wage-led. In the absence of a satisfactory econometric identification strategy, I estimate the distributive curve non-parametrically. The results suggest the presence of significant non-linearities, with US states exhibiting profit-squeeze dynamics at low levels of capacity utilization and wage-squeeze dynamics at high levels. These results suggest difficulties for wage-led policy akin to a coordination failure.
Geoffrey Hodgson has recently published a book where he wonders why heterodox economics seems to thrive while at the same time losing ground within the most prestigious universities. Although Hodgson considers himself to be a heterodox economist, he complains about the way heterodoxy has been defined by some of its most active thinkers, in particular Frederic Lee and Tony Lawson. Hodgson believes that heterodox economics should be defined neither by a left-leaning ideology nor by critical realism. He argues that too much energy has been devoted to the study of macroeconomics by the Marxist and post-Keynesian brands of heterodox economics, as they left aside what he believes to be the crucial issue of microeconomic behaviour which can be found in behavioural and evolutionary economics. Hodgson further argues that what he considers to be the decline in the impact of heterodox economics is partly due to a lack of quality control. The paper outlines and comments on these various assertions.
Emiliano Libman and Gabriel Palazzo
This paper highlights the role of external indebtedness and the presence of inflationary inertia in order to assess the effectiveness and sustainability of inflation targeting during disinflation episodes. As the recent Argentinian experience illustrates, a sluggish inflation rate and a significant current-account deficit may make the stabilization process difficult. To illustrate the point, we build a model that shows that, when inflation adjusts fast, the target may be achieved without building too much external debt. But if inflation adjusts slowly, an excessive build-up of external debt could lead to an increase in the risk premium, a sudden shortage of foreign exchange, and the eventual collapse of the inflation-targeting regime.