According to the principle of effective demand, the equilibrium level of aggregate output is a multiple of the expected autonomous demand for the period under consideration. Aggregate demand matches aggregate supply in equilibrium, but the equilibrium may and usually does lie below the output corresponding to full capacity and full employment. However, in the long term firms are presumed to use capacity at the normal or desired degree. Can the principle of effective demand be extrapolated to conclude that the rate of growth of output will depend on the expected rate of growth of autonomous demand? A positive answer would be a significant step towards a Keynesian long-period theory of output. This paper attempts to make an advance in that direction. Starting from a 'prospective accelerator' that incorporates expected increases in autonomous demand and takes account of an excess of capacity in order to eliminate it, this paper shows that the path of autonomous demand determines both the actual and the warranted rates of growth.
In this paper we derive a theoretical macro accumulation function, which relies on the accelerator principle and is complemented by utilizing capacity and profits. This investigation also accounts for several sources and kinds of uncertainty: exchange rates for financial uncertainty, oil prices for political uncertainty and interest rates for stock market uncertainty. The latter purports to account for the relationship between physical and financial investment. We also take on board the role of conventions in an attempt to account fully for uncertainty. In doing so, we include the relevant variables as deviations from their conventional levels. In the second part of the paper we estimate the investment function, by means of the system GMM in a panel of 12 OECD economies over the period 1970-2010.
The analysis of the "natural rate of interest" fills one of the most important and controversial chapters in the history of economic thought. It continues to be a highly topical subject in modern macroeconomics because it is the keystone of the new monetary policy. On classical and Post Keynesian grounds, this paper considers that the "money" rate of interest rate is a (re)distributive variable. At any moment we can refer to the "conventional" rate of interest, on which economic agents base their investments in real and financial assets. But this rate lacks the necessary conditions to be called "natural." There is no gravity center for market interest rates. Neither the general rate of profit nor the potential or warranted rate of growth can make a claim to this role. A unique relationship between the rates of interest and inflation, as suggested by Wicksell and the new macroeconomic consensus, does not exist. Given this, the ability of monetary authorities to influence the market interest rate, both in the short and the long run, is enhanced.Key words: conventional rate of interest, hysteresis, NAIRI, NAIRU, natural rate of interest, natural rate of unemployment, path-dependent variables.
This paper develops a predator-prey model to explain cycles in credit-led economies. The predator is the part of the financial sector that issues credit money for non-output transactions. It increases the indebtedness ratio and inflates bubbles that eventually have a negative impact on the real rate of growth (the prey). From this basis, we build a couple of models that may lead to self-contained or explosive cycles. Even in the first case, there is a risk of a financial collapse when certain variables move far away from their longterm equilibrium positions. In order to tame the cycle and avoid extreme positions, governments should ban the expansion of credit money for the purchase of assets and introduce permanent checks to risky credit.
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