MODELING KEYNES WITH KALECKI AND FINANCE (original) (raw)
Related papers
A post Keynesian macrodynamic simulation model for an open economy
Introduction The main feature of capitalist dynamics is the occurrence of growth-cum-fluctuations, that is, the occurrence of fluctuations of real GDP along a stable but not necessarily constant "trend" in the long run. These fluctuations are, in general, irregular but non-explosive; i.e. there is no tendency to increase the magnitude of business cycles in the long-term. Heterodox economists usually think the 'problem of capitalist dynamics´ in terms of linear and non-linear models of differential or difference equations that have definite (general) solutions. The linear dynamic models as those of Samuelson (1939) and Kalecki (1954) are only capable to produce regular fluctuations of economic activity along an exogenous determined trend of growth of output for a very restrictive set of parameters values. However, the fluctuations of output observed in the real world are essentially irregular fluctuations. Non-linear models with definite (general) solutions-as those of Hicks (1950) and Goodwin (1967)-are, in general, based on ad-hoc 'ceils´ and ´floors´ or generate solutions of the "limit-cycle" type that do not reproduce the irregular character of real world fluctuations. Because of the limitations of the dynamical models with general solutions, we can observe in recent years an increasing interest for dynamical models designed to be simulated in computer. These models have, in general, a non-linear structure, but the high number of equations and the complexity of interrelations between the endogenous variables make impossible the determination of a general, definite, solution. These models can be solved only with the assistance of computer simulations; and the solution assumes the form of time-paths, instead of equilibrium positions, for the endogenous variables. The solution is obtained by computer after setting numerical values for the parameters of the equations and the initial conditions of the model. These values have to be as realistic as possible in order to assure a robust result in terms of time-paths. One of the main limitations of the post-Keynesian paradigm in economics, as stressed several years ago by Solow (1979), is the inexistence of a common-unifying framework to analyze the capitalist dynamics. In a certain sense, post Keynesian economics is more a collection of alternative theories about growth, income distribution, inflation, business cycles than a theoretical approach to all these problems 1. There are several, and not necessarily compatible, theories to deal with the same problems. Take investment theory, for example. The approach of Davidson (1978) and Minsky (1975), although fully compatible with John Maynard Keynes ideas on the subject, is very different from the approach of Kalecki (1954) that stress the importance of the acceleration principle for investment decisions The objective of the present article is to present the structure and the first computational simulations of a macro-dynamic simulation model for an open economy with post-keynesian features that serves as a common framework for post-Keynesian economics. The elements of the post-keynesian paradigm incorporated in the model are: (i) The principle of effective demand; (ii) Differentiated saving propensities between capitalist and workers; (iii) Markup pricing; (iv) Investment decision based on the "two-price theory" of Minsky; (v) The relevance of capital structure over investment and pricing decision of firms; (vi) Inflation based on distributive conflict between capitalists and workers; (vii) Endogenous money supply; (viii) Endogenous technical progress a la Kaldor (1957).The computational simulations of the model reproduces some important features of capitalist dynamics as the occurrence of irregular, but non-explosive, fluctuations of the growth rate of real output; the stability of the profit rate in the long-term; the maintenance of idle capacity, the occurrence of a single episode of great reduction in the level of real output over the entire simulation period with is in accordance with the rare character of "Great Depressions" in the history of capitalism, the increasing importance of financial wealth for the dynamics of the wealth of capitalists and the irrelevance of real exchange rate for the dynamics of balance of payments. The present article is structured in five sections, including the introduction. In the second section, we will present the six building blocks of the model at hand. Third section is dedicated to the calibration methodology of the model. Section four presents the main simulation results and section five concludes the paper.
2009
Keywords: Kaleckian demand, Kaldorian productivity JEL classification: E12, E20, C, 63, C68 Abstract: This paper discusses a Post���Keynesian policy model of income, production, and trade. The one���country, one���sector model features Kaleckian investment demand, Kaldorian productivity and a labor market module based on a wage���price spiral. The model is first presented for a closed economy with exogenous real wages; second, for a closed economy with endogenous real wages; third, for an economy open to trade with ...
An Analytical Critique of ‘New Keynesian’ Dynamic Model
2013
In this paper, we present an analytical critique of New Keynesian dynamic model. It is shown analytically that the prototype New Keynesian dynamic model produces the paradoxical behaviors that are inconsistent with the empirical facts. We also present more traditional alternative approach that is consistent with the empirical facts, which is called the Old Keynesian dynamic model.
Keynes with a Perfectly Competitive Goods Market
Australian Economic Papers, 1987
I. 1x1 I~O I~l~C ' l~I O Y Even it' we conlinc our attenticin to goods atid labour marltcts. ahslracling froin the cyilicit consideration 01 asset markets. there seem to he at least three different models providing apparent I y different interpret at i o n s of I< cyn c si a n c con o m i c s : the d i ago n a I cross 111 od c I , t I 1 c favouritc of standard iiiacro tests: the fixed price disequilibrium models. and the Post Keynesian aggregate demandaggregate supply model.' 'Keynes assumed a 'given state ol'c[)mpetitioii'. h u t most o f his analyst> (scc Ahiniakopulos (19S2) atid Casarosa (1984)) seems to h e in ternis of perfectly competitive goods markcts. I<cmL*iiihcr t h a t hc accepted t h e first classical p o~t u l a t cmarginal product equals real wage ~ which i i i i p l i c s t h a t t h i s i s what tie assumed. 'Some comments on these assumptions are made later. SCC note 24 'This is contrary to the interpretations of neo-Ricardian Keynesians (scc Milgate (1982)) who employ a long period perspective. Remember. though, that their Sraffian long period concept is not necessarily the same as the standard Marshallian long run concept. 'The assumption of imperfect knowledge even for the short run obviously makes the market fail to satisfy the strict requirements of perfect competition Perfect competition prevails in the sense that firms are atomistic pricc takers, although it is price taking in a sense different from the textbook version since firms form price expectations rather than actually take observed prices. 'Long run expectations concern things about which the firm faces true uncertainty, as opposed to actuarily calculable risk (which is what we have assumed for short run expectations). The level of real investment reflects the role of animal spirits.
A digital simulation model of out-of-equilibrium market behaviour: a Keynesian-Sraffian approach
2017
Keynesian economics has devoted particular attention to out of full employment equilibrium phenomena, but the lack of an analytical framework for describing how economic agents interact and organize their production and consumption decisions has made it difficult to establish whether the economic system is self-adjusting at an out-of-full employment equilibrium. One of the purposes of Sraffa's book Production of Commodities by Means of Commodities was to understand the conditions that allow the system to reproduce itself. But how trade takes place remains an open question. For Sraffian economics, the lack of an analytical framework for describing how economic agents interact and organize their production and consumption decisions, has made it difficult to consider out-of-equilibrium behaviour. The present thesis is a first attempt to model Keynes's principle of effective demand with the aid of Sraffian schemes. The notion of effective demand requires the possibility for buye...
A Keynesian general equilibrium model with competitive firms and rational expectations
Journal of Economics Zeitschrift f�r National�konomie, 1992
A Keynesian general equilibrium model is developed from neoclassical principles. The model is based on competitive firm behavior, and optimizing agents that form expectations rationally. Firms determine their product price to maximize expected profits. Non-neutrality results follow from micro foundations that view firms as committing to a price and output level before actual demand is observed. It follows that optimal output levels are in part determined by demand conditions. In the general equilibrium framework, increases in government spending lead to welfare-improving increases in aggregate output.
DergiPark (Istanbul University), 2014
In order to determine which school is relevant, first the basic assumptions of these systems are compared: i) rational vs. adjusted vs. heterogeneous expectations, ii) existence of perfect competition in all markets leading to flexibility of prices and wages vs. imperfect competition giying rise to rigidities, and iii) presence or lack of coordination between markets. In the final phase of our evaluations the performance of the developed economies are surveyed to establish whether we meet with AFNE or ANRUE or else UNE or NANRUE; and whether policy prescriptions devised by respective schools solve or alleviate the problem at hand when implemented.
Pressacademia, 2017
We attempt to make a comparative evaluation of modern macroeconomic schools: Monetarism and New Classical School based on the Classical System that envisage automatic full employment or natural rate of unemployment (NRU) equilibrium (AFNE or ANRUE) vs. New Keynesian and Post-Keynesian Economics based on the Keynesian System which gives unemployment equilibrium (UNE) or non-automatic NRU equilibrium (NANRUE) due to insufficiency of aggregate demand. In order to determine which school is relevant, first the basic assumptions of these systems are compared: i) rational vs. adjusted vs. heterogeneous expectations, ii) existence of perfect competition in all markets leading to flexibility of prices and wages vs. imperfect competition giving rise to rigidities, and iii) presence or lack of coordination between markets.