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Contemporary Post Keynesian Analysis

Edited by L. Randall Wray and Mathew Forstater

Original articles by leading scholars of post Keynesian economics make up this authoritative collection. Current topics of the greatest interest are covered, such as: perspectives on current economic policy; post Keynesian approaches to monetary theory and policy; economic development, growth and inflation; Kaleckian perspectives on distribution; economic methodology; and history of heterodox economic theory. The contributors explore a variety of prevailing issues including: wage bargaining and monetary policy in the EMU; the meaning of money in the internet age; stability conditions for small open economies; and economic policies of sustainable development in countries transitioning to a market economy. Other enduring matters are examined through the lens of economic theorists – Kaleckian dynamics and evolutionary life cycles; a comparison between Keynes’s and Hayek’s economic theories; and an analysis of the power of the firm based on the work of Joan Robinson, to name a few.
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Chapter 1: Wage Bargaining and Monetary Policy in the EMU: A Post Keynesian Perspective

Eckhard Hein


* Eckhard Hein 1 INTRODUCTION Since the introduction of the European Monetary Union (EMU) in 1999 monetary policies for the euro area as a whole have been conducted by the Euro System with the European Central Bank (ECB) at its head. According to the Maastricht Treaty, the ECB’s primary goal is price stability. Only when price stability has been achieved ought the ECB to support economic policies of the European Union (EU). In choosing its precise goals and instruments the ECB is independent: it is free to define price stability and to apply the appropriate means to achieve it (Bean, 1998; Bibow, 2002a). This institutional design is based on the conviction that politically, economically and personally independent central banks are the solution to the ‘time inconsistency problem’ of monetary policy. According to this position, independent central bankers display a higher degree of conservatism concerning price stability and a higher degree of credibility in pursuing low inflation than democratically elected politicians. In this view the latter are prone to use ‘surprise inflation’ in order to boost employment, which will, however, only increase inflation expectations in the private sector without any long-run real positive effects on employment.1 Central bank independence is hence viewed to guarantee price stability as a ‘free lunch’, without real costs in terms of output, employment or growth.2 There are, however, major doubts whether time inconsistency should be considered the true cause of inflation and whether the role of independent central banks is adequately assessed...

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