Credit, Money and Macroeconomic Policy
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Credit, Money and Macroeconomic Policy

A Post-Keynesian Approach

Edited by Claude Gnos and Louis-Philippe Rochon

With recent turmoil in financial markets around the world, this unique and up-to-date book addresses a number of challenging issues regarding monetary policy, financial markets and macroeconomic policy.
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Chapter 13: Re-thinking Macroeconomic Policies

Malcolm Sawyer


Malcolm Sawyer INTRODUCTION The ways in which macroeconomic policies are thought about and formulated are heavily dependent on the underlying analysis of the macro economy. That analysis focuses on some macroeconomic problems and not others and suggests policy instruments and their association with certain policy objectives. The monetarist analysis is a prime example of this whereby inflation comes to be viewed as the major macroeconomic problem, rather than unemployment and control of the money supply the appropriate policy instrument to control inflation. Unemployment settles at the ‘natural rate’ and is no longer perceived to be a macroeconomic problem. Much recent macroeconomic policy discussion has been conducted within the ‘new consensus in macroeconomics’ framework (for a critical evaluation, see Arestis and Sawyer, 2008). Within that framework the major objective of macroeconomic policy becomes control of inflation to be achieved through the use of monetary (interest rate) policy, and there is little role or need for fiscal policy. In contrast, the macroeconomic analysis underpinning this chapter is a Kaleckian one, and its key components are outlined below. From that analysis we argue for the revival of fiscal policy and for industrial and regional policy to address lack of productive capacity. The major objective of macroeconomic policy is identified here with the achievement of full employment of the available labour force (recognizing that the available labour force is socially conditioned and influenced by the path of economic activity). In the short term a major objective is the attainment of a target level of...

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