Critical Assessments of The General Theory
Edited by L. Randall Wray and Matthew Forstater
Chapter 9: Capital Accumulation, Income Distribution, Technical Progress and Endogenous Money in a Post Keynesian Macrodynamic Model
Luciano Dias Carvalho and José Luís Oreiro INTRODUCTION The objective of this chapter is to analyze the dynamic path of some macroeconomic variables – in particular, the proﬁt rate, the interest rate and the degree capacity utilization – in a Post Keynesian macrodynamic model of capital accumulation, income distribution and technological progress. In order to do that, we shall present the basic structure of a Post Keynesian macroeconomic dynamic model of the third generation1 whose main features – which distinguish it from other Post Keynesian models – are the great importance given to the technological progress for the determination of long-term dynamics of the economy and its eﬀects over the banking mark-up and interest rates. In fact, banking mark-up is supposed here as dependent on the rate of technological progress. The explanation for this uncommon speciﬁcation to the Post Keynesian models is the assumption that banking mark-up is determined by banks’ liquidity preference, in accordance to the so-called structuralist view of money supply endogenity (see Pollin, 1991). Changes in a bank’s liquidity position, in turn, are a consequence of a growing demand for ﬁnance due to an increasing level of investment expenditures. Since increasing investment is a direct consequence of technological progress, we can use the rate of technological progress as a proxy of the rate at which investment is increasing over time. Thus, when the rate of technological progress receives a positive shock, commercial banks increase the mark-up over the short-term interest rate which is controlled by the central...
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