We study the real long‐run effects of the structural stance of monetary policy and of inflation, in the context of a monetary growth model where R&D is complemented with physical capital ...accumulation. We look into the effects on a set of real macroeconomic variables that have been of interest to policymakers—the economic growth rate, real interest rate, physical investment rate, capital‐to‐labor ratio, R&D intensity, and velocity of money. These variables have been previously analyzed from the perspective of different, separated, strands of the theoretical and empirical literature. Additionally, we analyze the long‐run relationship between inflation and both the effectiveness of real industrial‐policy shocks and the market structure, assessed namely by average firm size. We present novel cross‐country evidence on the empirical relationship between the latter and long‐run inflation.
This study presents a monetary disequilibrium growth model and conducts numerical simulations to investigate how dynamic paths are affected by the initial conditions and the parameters of expectation ...formation. The main results are as follows. First, dynamic properties such as stable convergence and cyclical fluctuations depend on the type of expectation formation rather than on the initial regimes. Stable convergence takes an excessively long time when expectation formation is too rational and cyclical fluctuations appear when it is too adaptive. Second, when the economy converges to the steady state (i.e., the Walrasian equilibrium), persistent Keynesian unemployment is likely to appear along the dynamic path. Third, the dynamics of inflation expectation that contain the price dynamics in the feedback loop might play an important role in convergence to the steady state.
When lenders cannot force borrowers to repay debts, assets are often pledged to secure loans. In this paper borrowers lose collateral once they renege on debts, and exclusion of defaulters occurs ...probabilistically, with a higher probability implying better enforcement. Increased efficiency in enforcement reduces asset prices, while raising loan-to-value ratios. If the rise in loan-to-value ratios is the dominant effect, aggregate liquidity and output increase with the advance in enforcement. Inflation raises the repayment cost by increasing the loan rate, while raising the default cost through exclusion. Consequently, inflation raises loan-to-value ratios and output only when enforcement is sufficiently efficient.
•An economy where defaulters lose collateral and exclusion occurs probabilistically.•A higher exclusion probability implies better enforcement.•Advances in enforcement raise loan-to-value ratios, while reducing asset prices.•Liquidity and output increase with enforcement when the technology is efficient enough.•Inflation raises loan-to-value ratios when enforcement is good enough.
This book provides an introduction to basic as well as advanced macrodynamics, viewed as a disequilibrium theory of fluctuating growth. It builds on an earlier attempt to reformulate the foundations ...of macroeconomics from the perspective of real markets disequilibrium and the conflict over income distribution between capital and labor. It does so, not because it seeks to support the view that this class conflict is inevitable, but rather from the perspective that an understanding of this conflict may help to formulate social principles and policies that can help to overcome class conflict at least in its cruder forms. It is further hoped that such an understanding can even lead to rational procedures and rules that may turn this conflict into a consensus-driven interaction between capital and the employable workforce.
This paper evaluates the effects of monetary policy directed at inflation across different levels using panel data quantile regression and instrumental variable quantile regression methods. We ...identify a heterogeneous and nonlinear relationship between an explicit quantitative goal for monetary policy and inflation after controlling for the problem of possible endogeneity. We also find that both having and successfully hitting quantitative targets is more effective for monetary policy in lowering inflation in high-inflation episodes than in low-inflation episodes. When countries suffer from severe inflation problems, the adoption of quantitative goals for monetary policies can thus deliver important economic gains. Conversely, the adoption of quantitative goals may not result in a lowering of inflation when countries are more economically sound.
•When countries suffer from severe inflation problems, the adoption of quantitative monetary targets can deliver important economic gains.•The adoption of quantitative goals may not result in a lowering of inflation when countries are more economically sound.
Empirical evidence indicates that monetary policy is not super-neutral in many countries. In particular, in high inflation economies, inflation is negatively related to economic activity. By ...comparison, inflation may be positively correlated with output in low inflation countries. We present a neoclassical growth model with money in which the incidence of liquidity risk is inversely related to aggregate capital formation. Interestingly, there may be multiple monetary steady-states where the effects of monetary policy vary. In poor economies, the financial system is highly distorted and higher rates of money growth are associated with less capital formation. In contrast, in advanced economies, a Tobin effect is observed. Since inflation exacerbates distortions from a coordination failure in the low-capital steady-state, individuals become much more exposed to liquidity risk. Consequently, optimal monetary policy depends on the level of development.
New Consensus Models (NCMs) have been criticised by Post-Keynesians for a variety of reasons, and amendments or alternatives have been presented. The present paper attempts to provide a ...Post-Keynesian alternative model to the NCM. The model consists of three classes: rentiers, firms and workers. It has a short-run inflation barrier derived from distribution conflict between these classes, which is endogenous in the medium run. Distribution conflict affects not only inflation but also income shares. On the demand side, the income classes have different saving propensities. We apply a Kaleckian investment function with expected sales and internal funds as major determinants. The paper analyses short-run stability and includes medium-run endogeneity channels for the Non-Accelerating-Inflation-Rate-of-Unemployment, or NAIRU: persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. From the model, Post-Keynesian policy rules are derived. We argue that improved employment without increasing inflation will be possible if macroeconomic policies are coordinated along the following lines: the central bank targets distribution, wage bargaining parties target inflation and fiscal policies are applied for short- and medium-run real stabilisation purposes.
A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, the credit-trade friction attributed to inflation can ...be resolved and unexpected inflation causes no redistribution effect between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off, but creditors worse off. In a high-inflation economy, money is used as a unit of account for spot trades only and an Indexed-UoA emerges as a unit of account for deferred-payment trades.
•The nature of an indexed unit of account is investigated using a standard monetary model.•An indexed unit of account turns out to resolve credit-trade friction attributed to inflation.•Also, it removes the redistribution effect between debtors and creditors caused by unexpected inflation.•If inflation is low enough, money is used as a unit of account for even deferred-payment trades.•If inflation is high, an indexed unit of account emerges as a unit of account for deferred-payment trades.
Empirical evidence suggests that real activity, the volume of bank lending activity, and the volume of trading in equity markets are strongly positively correlated. At the same time, inflation and ...financial market activity are strongly negatively correlated (in the long run), as are inflation and the real rate of return on equity. Inflation and real activity are also negatively correlated in the long run, particularly for economies with relatively high rates of inflation. We present a monetary growth model in which banks and secondary capital markets play a crucial allocative function. We show that – at least under certain configurations of parameters – the predictions of the model are consistent with these and several other observations about inflation, finance and long-run real activity.
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