Is this 'it'? An outline of a theory of depressions

Abstract

The crisis initiated in the United States in 2007, and spread worldwide in 2008, has been compared to the Great Depression of the 1930s. They have in common a deep fall in the level of activity (although in the 2010s government intervention was able to contain the fall before it could reach the dimensions of the 1930s), followed by a period where recovery is uncertain and fragile, as has been the case both in the US and in Western Europe. The paper outlines a theory of depression that comprises both aspects. The theory draws on the theoretical contributions of Keynes, Fisher, Minsky and Leijonhufvud, proposing that the concept of "corridor of stability" may help to explain how an initial adverse aggregate shock may lead to a contractionary spiral, where debt deflation is main mechanism to explain the downward movement of the economy and why one should expect a period of weak and volatile recovery to follow it.

Cardim De Carvalho and the Post Keynesians on Fiscal Policy: The Economic Consequences of Austerity

“…Toma como pontos de partida o papel da demanda agregada na determinação do produto no curto e longo prazo e a importância da política fiscal como instrumento de estabilização do produto. O artigo utiliza como elementos teóricos o conceito de corredor de estabilidade adaptado por Cardim de Carvalho (2016) e o modelo de equilíbrio móvel de Keynes, tal como apresentado por Kregel (1976). Argumenta-se que choques adversos sobre o produto, seguidos de políticas restritivas que prolongam a recessão, impactam a propensão a consumir, a preferência pela liquidez e a eficiência marginal do capital, gerando uma nova trajetória de longo prazo para a economia.…”

“…It is interesting to note that for Cardim de Carvalho (2016) 'changing parameters' of the economy plays a prominent role when defining the corridor of stability and the possibility of trend stationarity in output. However, he does not explain further which parameters may change and how such changes would affect the system.…”

“…Thus, long-period expectations may shift in reaction to shocks in the system, and this, in turn, affects the 'fundamental psychological variables' that determine aggregate demand, namely, the propensity to consume, the liquidity preference, and the marginal efficiency of capital. 5 In other words, the 'fundamental psychological variables' or, to put it in Carvalho's (2016) terms, the 'parameters that regulate the operation of the economy' may be endogenous to economic activity and therefore respond to short-run demand shocks via changes in expectations. In particular, for this paper, it is worth pointing out that such parameters may respond to fiscal contractions through different channels, which, in turn, may push the economy to different long-run paths.…”

“…The impact of austerity policies on output is explored in this paper with the use of two theoretical tools. The first one is the concept of the corridor of stability, adapted by Cardim de Carvalho (2016) to outline a theory of depressions. The second one is Keynes's model of shifting equilibrium, as presented by Kregel (1976).…”

Risco Sistêmico, Fragilidade Financeira E Crise: Uma Análise Pós-Keynesiana a Partir Da Contribuição De Fernando Cardim De Carvalho

“…A interrelação das análises de Minsky e Kregel com o conceito de risco sistêmico não é explicitada pelos autores, que enfocam o conceito de fragilidade financeira e discutem os mecanismos de fragilização no âmbito do sistema financeiro, seja ao longo do tempo, seja via a introdução de inovações financeiras. É somente nos escritos do professor Fernando Cardim que essa interrelação vai ser desenvolvida explicitamente, respondendo também à própria evolução, ao longo do tempo, do conceito de "risco sistêmico" na literatura convencional (CARVALHO, 2005(CARVALHO, , 2010(CARVALHO, , 2015(CARVALHO, , 2016a(CARVALHO, , 2016bCARVALHO et al, 2007;IBASE, 2010).…”