We study how stylized monetary (proportional money transfers), fiscal (lump sum money transfers), and public expenditure policies may eliminate endogenous deterministic cycles and stationary Markov sunspot equilibria in a simple version of the overlapping generations model. We also present new, constructive methods for analyzing stationary Markov sunspot equilibria in such a framework.

Stabilizing competitive business cycles

Socially desirable responding (SDR) is an often-reported source of bias in survey interviews. It describes the tendency of a respondent to answer in a way that is socially desirable rather than to answer truthfully. This response bias also threatens the reliability and validity of survey-based environmental valuation techniques such as the Contingent Valuation Method (CVM). Therefore, the study deals with the assessment of the conditions for the occurrence of SDR in CVM interviews. A behavioral model is devised to take into account a set of factors triggering SDR responses. The impact of these factors of SDR on willingness to pay (WTP) responses is tested. The results reveal that the relevant factors do not affect WTP statements simultaneously but rather influence them in an independent manner. These findings can improve future CVM studies by identifying respondents who are prone to be influenced by SDR.

https://www.econstor.eu/bitstream/10419/178447/1/978-3-653-01583-6.pdf

Social Desirability and Environmental Valuation

A recent book, Hedge Funds in Emerging Markets by Gordon de Brouwer (reviewed by Greg N. Gregoriou), and a recent academic article, “Measuring the Market Impact of Hedge Funds” by William Fung and David Hsieh (reviewed by Thomas Schneeweis), address the issue of hedge funds directly impacting financial markets.

Hedge Funds in Emerging Markets

The turn of the year 2001/02 marked an extreme low in Argentina’s history, otherwise truly turbulent enough. The country’s deep economic, social, and political crisis following the declaration of default and floating o f the exchange rate has rightfully been compared with the Great Depression. Only a few years earlier, Argentina’s currency board arrangement (CBA), which stood at the centre of a broad stabilization plan, and by which, since 1991, the Argentine Peso was legally f ixed to the US-Dollar, had been staged even by the IMF as a model for other develop ing economies. Now, it is widely regarded as standing at the centre of the problems which led to this sorry development. Given the variety of often one-sided analyses of wh at went wrong in Argentina, the goal of my thesis is to contrast the Argentine CBA’s ove rall macroeconomic costs with its benefits. This requires a thorough investigation in to the theory of currency boards, as well as an analysis of the historical context and p olicies which determined the Argentine CBA. Beyond trying to arrive at a balanced assessment of the Argentine experience with its CBA, including thoughts about what should have been done differently, I want to extend my findings towards a general recommendation for developing economies concerning the conditions for a successful use of c urrency boards as stabilization strategies and as monetary long-term frames. This w ill also include the need to address the broader issues related to the question to what extent fixed exchange rate regimes remain a viable alternative for developing economie s in a globalized world.

Hyperinflation, Currency Board, and Bust: The Case of Argentina

This paper recalls the tensions that have existed between the Fundamentalist Post Keynesians and the Cambridge post-Keynesians, with the former being concerned mostly with financial relations while the latter were mostly studying real magnitudes. The paper surveys the various efforts that have been made to integrate the two views since the middle of the 1980s, in particular the efforts made to model Minsky’s financial fragility hypothesis. The last section of the paper shows how financial assets and liabilities as well as financial commitments are best being formalized by using a stock-flow consistent approach. It is also shown how some of the concerns that have arisen as a result of the recent subprime financial crisis can be modelled, by adding residential capital, household debt, or mortgage-based securities. Towards a post-Keynesian consensus in macroeconomics: Reconciling the Cambridge and Wall Street views The current financial crisis, which started to unfold in August 2007, is a reminder that macroeconomics cannot ignore financial relations, otherwise financial crises cannot be explained. Several authors have underlined the apparent tensions that have existed between the socalled American Post Keynesians and the Cambridge Keynesians. The American Post Keynesians, also known as the Fundamentalist post-Keynesians, have had as their most famous representatives Paul Davidson and Hyman Minsky. By contrast the Cambridge Keynesians can are associated with the Kaleckian and Kaldorian strands of post-Keynesianism, along with the neo-Ricardian (or Sraffian) Keynesians. Several observers have pointed out in the past that they could see little homogeneity in the economic views and methods of these two main groups of heterodox Keynesians. The American Post Keynesians seemed to be mainly concerned with money, debt, liquidity, interest rates, and cash flow issues that characterized an uncertain world dominated by financial markets. This also came to be known as Wall Street Keynesianism or Financial Keynesianism. On the other hand, the Cambridge Keynesians focussed on real issues, mainly through growth models, being concerned with technical choice, income distribution, rates of capacity utilization, pricing, normal and realized profit rates. The purpose of the present paper is to show that while these differences have certainly existed in the past, the potential for some reconciliation between these two main views of the economy has always existed, and that some large efforts have been made over the last two decades to effectively link the Cambridge and the Wall Street views. In other circles, this has been known as the problem of the integration of money (in real models). It will be argued that stock-flow consistent models, inspired in particular by the work of Wynne Godley, are an appealing way to move forward in search of a post-Keynesian consensus in macroeconomics, as it allows to entertain both monetary and real issues within a single model. These stock-flow consistent models also allow a rapprochement with the concerns of the monetary post-Keynesian economists, such as Tom Palley, who have taken a Structuralist view in their debates with Horizontalist authors such as Basil Moore. But this should surprise no one, as both Godley and Palley ultimately rely on a post-Keynesian interpretation of James Tobin’s (1982) apparatus that deals with portfolio choice among multiple assets. This particular topic will not be developed further however. Cambridge macroeconomics without money For a long time Cambridge macroeconomics was associated with the Cambridge capital controversies and with the Cambridge models of growth, based on some exogenous growth rate and differentiated propensities to save. The Cambridge growth models had been created as the long-run extension of Keynes’s General Theory on Employment, Interest and Money, and their inspiration was also drawn from the fundamental equations of Keynes’s earlier Treatise on Money. Yet, as pointed out by Jan Kregel (1985, p. 133), “money plays no more than a perfunctory role in the Cambridge theories of growth, capital and distribution developed after Keynes”. The same could be said about the absence of any explicit role for expectations and fundamental uncertainty in these models, although the same Jan Kregel (1976) had attempted in an earlier article to provide a methodological framework to justify this absence in Cambridge growth models, as well as to justify the absence of a truly dynamic analysis that should have replaced the standard tool of comparative dynamic analysis that then plagued the Cambridge growth models. Thus, it seemed, as Mark Blaug (1974, p. 3) had previously argued in his assessment of the Cambridge revolution, that Cambridge authors had not been any more successful than mainstream authors in evading static analysis, despite Kregel’s methodological admonition. Kregel’s (1976) defense of Cambridge macroeconomics without money was that the Cambridge economists were following on the steps of Keynes, setting some variables as given to allow the construction of a model that could be understood, leaving for a later stage the task of shifting the values taken by these given variables. In the case of Cambridge growth models, Kregel argued that the propensities to save and liquidity preference, presumably along with interest rates, could be kept as part of the given datum. It was best to truly understand growth and distribution while keeping monetary factors given, and only later shift these monetary factors. By 1985, however, Kregel was losing patience. At that time, it was not yet at all obvious how monetary factors could be introduced appropriately into the Cambridge growth model or in other heterodox Keynesian analyses, such as that of the French monetary circuit. Having been a student of Davidson, Kregel (1986) was well aware that some room had to be found for interest rates, liquidity preference analysis, and the banking sector. His impatience with the current situation led him to compare Cambridge macroeconomic without money to Hamlet without the Prince, and to call for the introduction of Bulls and Bears into heterodox Keynesian analysis. At the time, as far as I know, only two means of introducing financial factors into Cambridge growth models had been found. On the one hand, Pasinetti (1974) had considered distinguishing the rate of return on the assets held by workers from that held by capitalists. He considered the interest rate to be the rate of return on the assets held by workers, assuming as a simplifying assumption that workers’s financial assets would all be held in money deposits or bonds, while capitalists would hold mostly stock market shares. This allowed him to distinguish the overall profit rate of the economy, the interest rate, and the rate of return of capitalists. The other interesting financial factor in Cambridge growth models had its origins in Kaldor’s (1966) neo-Pasinetti model, which explicitly introduced corporate retained earnings as well as capital gains on stock market shares. The model gave rise to various extensions, notably those from Basil Moore (1973, 1975), who transformed the rate of accumulation from an exogenous to an endogenous variable, making it a function of Kaldor’s valuation ratio or what is better known as Tobin’s q ratio, based on the difference between the supply and demand prices of capital, or more precisely between the production price of new investment goods and the price of a stock market share representing one unit of such capital goods. As a consequence, fluctuations in the propensity to save of households would have a feedback effect on the rate of growth of the economy. The problem with such a model, as had already been pointed out by Paul Davidson (1972), following his sabbatical visit to the University of Cambridge where he had met Moore, was that the neo-Pasinetti model and its various extensions assume that all saving is done in the form of share purchases. Thus the valuation ratio rises when households’s propensities to save rise. There is no money in the model, and hence no portfolio choice on the part of investors. Indeed, the same criticism could be made of all Cambridge models of growth and distribution at the time, a criticism that Davidson (1968) did not fail to make. Davidson’s (1972, ch. 12-13) solution to this drawback, however, was no more satisfactory, for despite distinguishing between stocks of capital and flows of investment in the earlier chapters, he introduced a flow parameter to deal with what was essentially a stock issue, that of the choice between stocks of shares and money, when attempting to add money to the neo-Pasinetti framework. At about the same time, Hyman Minsky was busily developing his financial fragility hypothesis, arguing that macroeconomists, among which mainstream Keynesian economists, had omitted the role of debt, leverage and interest payments, thus ignoring the possible deflationary impact of falling asset prices. His alternative view, based on the fundamental role of financial relationships on the real economy, came to be known as Wall Street Keynesianism. It was also an implicit criticism of the models developed by Cambridge Keynesians, Kaldorians and Sraffians alike, and indeed, because of this, Minsky and Davidson were engaged in a rather tense relationship with both the Kaldorians and the Sraffians during the ten years or so of the Trieste Post-Keynesian Summer school (Arena 1987). Odd bits here and there Still, there has always been some commonalities between the two major strands of postKeynesian economics. As pointed out on a number of occasions by Louis-Philippe Rochon (2005), the magnum opus of Cambridge Keynesian economics, the Accumulation of Capital of Joan Robinson, contains several chapters that deals with monetary and financial issues. But these chapters appeared after about twenty highly demanding chapters, accompanied by technical app

Towards a Post-Keynesian consensus in macroeconomics: Reconciling the Cambridge and Wall Street Views

This book develops a new theoretical approach to the explanation of systemic financial crises in industrial and emerging market countries. In contrast to standard models, the present cyclical approach is consistent with the following three stylized facts. Firstly, systemic financial crises are a recurrent phenomenon generally accompanied by excessive boom-bust cycles. Secondly, the frequency of financial crisis cycles is very irregular. Thirdly, most financial crisis cycles are initiated by positive shocks to profit expectations which induce an unsustainable build-up of financial fragility driven by irrational exuberance. The present approach is based on a sophisticated balancesheet structure with many assets, as well as on an expectation formation scheme which combines the rational expectations hypothesis with Keynes’ Beauty Contest Theory.

Explaining Financial Crises: A Cyclical Approach

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Explaining Financial Crises: A Cyclical Approach