You are looking at 1 - 10 of 10 items

  • Author or Editor: Esteban Pérez Caldentey x
Clear All Modify Search
You do not have access to this content

Esteban Pérez Caldentey

This chapter argues that the unsatisfactory performance and dim future prospects of developing economies demand rethinking the theoretical foundations of development economics by fostering a dialogue and collaboration between structuralist and post-Keynesian economics. This collaboration can be centred on five themes: (i) a methodological approach based on historical trends and measurement; (ii) the characterization of the system of economic relations around the concepts of centre and periphery; (iii) the relation between income distribution, accumulation and economic growth; (iv) the central role of demand and (v) the role of the State.

You do not have access to this content

Esteban Pérez Caldentey and Matías Vernengo

We argue that a fundamental difference between the various post-Keynesian approaches to economic growth lies in their treatment of investment. Neo-Kaleckian models, which are more appropriately Robinsonian models, postulate an investment function dependent on profitability, and that is partly autonomous from income. Some of these models rely on the importance of profitability, captured by the profit share, to make the case for profit-led growth. For their part, Kaldorian models, which are in our view compatible with Sraffian models, place the emphasis on the accelerator in the determination of investment. More importantly, since investment is a derived demand, that is, ruled by the adjustment of capacity to autonomous demand, there is a tendency to a normal level of capacity utilization. These are supermultiplier models. In our view the Kaldorian approach is better equipped to deal with some of the issues relating income distribution to accumulation with effective demand in an open economy in the long run. We develop an open economy model to examine the conditions under which an increase in real wages can produce wage-led growth, showing that the limit to wage-led expansion is a binding external constraint. The model is unique in emphasizing the role of income distribution in affecting real exchange rates, and it is through this channel that the ambiguous effects of income distribution on growth arise. We also provide some evidence indicating that real wages are positively related to growth, investment, and capacity utilization, and we highlight the role of finance in sustaining expansions suggesting that debt-led growth should not be identified with profit-led growth.

You do not have access to this content

Alejandro González and Esteban Pérez-Caldentey

Hyman Minsky's financial instability hypothesis (FIH) argues that as part of the normal functioning of capitalist economies robust financial structures tend to evolve into highly leveraged fragile financial structures. The paradox of debt challenges the very foundation of Minsky's FIH as it maintains that the upward and downward phases of business cycles need not be characterized by processes of respective leveraging and deleveraging. Using a panel of firm-level data and seemingly unrelated regressions we analyse the relationship between debt and investment for 12 Latin American countries for the years 2005 (expansion) and 2009 (contraction). We reject the paradox of debt in favor of the FIH, regardless of our model specification or the choice of external financing. The FIH seems to intensify in expansions with respect to recessions, and its intensification during expansions is explained by a larger fraction of firms acquiring debt and new investment projects, rather than from further leveraging for those firms already engaged in fixed investment.

You do not have access to this content

Esteban Pérez Caldentey and Matías Vernengo

The justification for inflation targeting rests on three core propositions. The first is called ‘lean against the wind,’ which refers to fact that the monetary authority contracts (expands) aggregate demand below capacity when the actual rate of inflation is above (below) target. The second is ‘the divine coincidence,’ which means that stabilizing the rate of inflation around its target is tantamount to stabilizing output around its full employment level. The third proposition is that of stability. This means that the inflation target is part of an equilibrium configuration which generates convergence following any small disturbance to its initial conditions. These propositions are derived from a closed economy setting which is not representative of the countries that have actually adopted inflation targeting frameworks. Currently there are 27 countries, 9 of which are classified as industrialized and 18 as developing countries that have explicitly implemented a fully fledged inflation targeting regime (FFIT). These countries are open economies and are concerned by the evolution of the external sector and the exchange rate as proven by their interventions in the foreign exchange markets. We show that these three core propositions and the practice of inflation targeting are inoperative in an open economy context.

You do not have access to this content

Esteban Pérez Caldentey and Matías Vernengo

Conventional wisdom about the business cycle in Latin America assumes that monetary shocks cause deviations from the optimal path, and that the triggering factor in the cycle is excess credit and liquidity. Furthermore, in this view the origin of the contraction is ultimately related to the excesses during the expansion. For that reason it follows that avoiding the worst conditions during the bust entails applying restrictive economic policies during the expansion (that is, the boom) in the business cycle including reining in government expenditures and reducing liquidity to private agents. In this paper we develop an alternative approach that suggests that fiscal restraint may not have a significant impact in reducing the risks of a crisis, and that excessive fiscal conservatism might actually exacerbate problems. In the case of Central America, the efforts to reduce fiscal imbalances, in conjunction with the persistent current-account deficits, implied that financial inflows, with remittances being particularly important in some cases, allowed for an expansion of a private spending boom that proved unsustainable once the Great Recession led to a sharp fall in external funds. In the case of South America, the commodity boom created conditions for growth without hitting the external constraint. Fiscal restraint in the South American context has resulted, in some cases, in lower rates of growth than what otherwise would have been possible as a result of the absence of an external constraint. Yet the lower reliance on external funds has made South American countries less vulnerable to the external shock waves of the Great Recession than Central American economies.

This content is available to you

Esteban Pérez Caldentey and Matías Vernengo

You do not have access to this content

Matías Vernengo and Esteban Pérez Caldentey

You do not have access to this content

Esteban Pérez Caldentey and Juan Carlos Moreno-Brid

This paper extends the balance-of-payments-constrained (BoPC) growth model and Thirlwall's law to include the terms of trade with and without capital flows. Without capital flows a positive (negative) change in the terms of trade by improving (worsening) export performance can ceteris paribus augment (reduce) the rate of growth of an economy compatible with balance of payments’ long-run equilibrium. With the inclusion of capital flows the BoPC dynamics become more complex. Assuming no changes in the real exchange rate and in the import elasticity of demand, an improvement in the terms of trade can increase the level of the external deficit compatible with BoPC growth. This results from the terms-of-trade effects on the purchasing of exports and on foreign-capital inflows. The positive effect of an improvement in the terms of trade may be partially offset by an appreciation of the real exchange rate and an increase in the import elasticity of demand, when the model is extended to allow for such interactions in the analysis.

You do not have access to this content

Juan Carlos Moreno Brid and Esteban Pérez Caldentey