Interest rates, income distribution, and monetary policy dominance: Post Keynesians and the "fair rate" of interest

Rochon, Louis-Philippe; Setterfield, Mark

doi:10.2753/pke0160-3477300101

Cited by 114 publications

(81 citation statements)

References 22 publications

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“…Applying the distinction made by Rochon/Setterfield (2007-8a, 2007, either an 'activist' position or a 'parking-it' approach for the central bank applying the interest rate has been proposed by PKs. The proponents of the 'activist' position confirm the central bank's responsibility for stable inflation and regard the interest rate as an appropriate tool to achieve this goal.…”

Section: Monetary Policymentioning

confidence: 99%

“…With respect to the inflation generation process, some PK authors have assumed the existence of a short-run inflation barrier and hence the NAIRU away (Atesoglu/Smithin 2006, Setterfield 2004), whereas others have accepted that there is such a short-run inflation barrier, which, however, is endogenous in the medium to long run through different channels (Lavoie 2004, Hein 2006a: 133-152, Stockhammer 2008. With respect to the income generation process, some authors have accepted the interest rate inverse IS-curve from the NCM (Atesoglu/Smithin 2006, Lavoie 2004, Rochon/Setterfield 2007-8a, Setterfield 2004, whereas others have replaced it by a more elaborated PK/Kaleckian approach to effective demand allowing for real debt and different distribution effects (Hein 2006a: 133-152, Rochon/Setterfield 2007-8b, Setterfield 2006b, Stockhammer 2008 (Gnos/Rochon 2007, Lavoie 1996a, Smithin 2004, Rochon/Setterfield 2007-8a, 2007-8b, Setterfield 2006b, Wray 2007. From this perspective it follows that nominal stabilisation should be delegated to wage or incomes policies (Arestis 1996, Davidson 2006, Hein 2002: 133-152, Kriesler/Lavoie 2007, and that fiscal policies should be in charge of real stabilisation in the short and in the medium to long run (Arestis/Sawyer 2003, 2004a, 2004c, Gnos/Rochon 2007.…”

Section: Considering the Ncm Recommendation Of Inflation Targeting Momentioning

confidence: 99%

“…2 See Ball/Mankiw (2002), Blanchard/Katz (1997), Layard/Nickell/Jackman (1991: 361-396), and Mankiw (2001) for concepts of a NAIRU. 3 For a discussion and a critique of the NCM and its main elements, the NAIRU and an inflation targeting central bank, from a PK view see, among others, Angeriz/Arestis (2006), Arestis/Sawyer (2004a, 2004b, 2005, Atesoglu/Smithin (2006), Davidson (2006), Fontana (2006), Fontana/Palacio-Vera (2002, Gnos/Rochon (2007), Hein (2002Hein ( , 2004Hein ( , 2006aHein ( , 2007, Kriesler/Lavoie (2007), Lavoie (2004Lavoie ( , 2006, Monvoisin/Rochon (2006), Palacio-Vera (2005), Palley (2006), Rochon/Rossi (2006), Rochon/Setterfield (2007-8a, 2007, Sawyer (2001Sawyer ( , 2002Sawyer ( , 2006, Seccareccia (1998), Setterfield (2004Setterfield ( , 2006aSetterfield ( , 2006b, Smithin (2004), Stockhammer (2004aStockhammer ( , 2004bStockhammer ( , 2008, and Wray (2007).…”

Section: Introductionmentioning

confidence: 99%

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Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model

Hein

Stockhammer

2010

Review of Political Economy

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-New Consensus Models (NCMs) have been criticised by Post-Keynesians (PKs) for a variety of reasons. The paper presents a model that synthesises several of the PK arguments. 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 does not only affect 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-ofUnemployment (NAIRU): persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. The model is used to analyse NCM and PK policy assignments and policy rules. 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.Keywords: Macroeconomic policy mix; employment; inflation; New Consensus; PostKeynesian alternative JEL-Classification: E12; E20; E52; E61 * For helpful comments we would like to thank Philip Arestis, Jan-Oliver Menz, and the participants in the conference 'Unemployment: Past and Present', 30 August -1 September, 2007, Downing College, Cambridge, UK. Remaining errors are, of course, ours. The major part of the paper was written while Eckhard Hein was a visiting professor at Vienna University of Economics and Business Administration (WU). AbstractNew Consensus Models (NCMs) have been criticised by Post-Keynesians (PKs) for a variety of reasons. The paper presents a model that synthesises several of the PK arguments. 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 does not only affect 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-AcceleratingInflation-Rate-of-Unemployment (NAIRU): persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. The model is used to analyse NCM and PK policy assignments and policy rules. We argue that improved employment without increasing inflation will be possible, if macroeconomic policies are coordinated along the following lines: The central bank targets di...

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Section: Monetary Policymentioning

confidence: 99%

Section: Considering the Ncm Recommendation Of Inflation Targeting Momentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model

Hein

Stockhammer

2010

Review of Political Economy

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“…102-110), Keen (1995Keen ( , 2000, and Yoshida and Asada (2007); and (6) the notion that policy interest rates should be held constant or fairly stable (Rochon and Setterfield 2007), in order to avoid various destabilizing effects of stop-go stimulus, as demonstrated in the models in Hannsgen (2005), Datta (2014), Martin (2008, and others.…”

Section: )mentioning

confidence: 99%

“…21 In this paper, the central bank uses a nominal rate instrument to maintain a fixed inflation-adjusted interest rate (see below). Some have argued that "park-it" rules in general are the most stabilizing kind of interest rate rules; the government can do no better than to hold either the nominal policy rate or the real policy rate constant (Rochon and Setterfield 2007). In contrast to this traditionally Keynesian point of view, it is important to realize that most contributions to the policy aspects of the post-2008 FML (Charpe et al 2009) still put the entire burden of stabilization on monetary policy, contrary to the gist of the rehabilitation of fiscal policy referred to above.…”

Section: Outside Of Vastly Different Approaches Within the Mainstreammentioning

confidence: 99%

Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility

Hannsgen

Young-Taft

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu The idea of including a model of greenhouse gas accumulation in the model developed in this paper was inspired by the presentations at a conference at SCEPA, The New School for Social Research, New York City, which was attended by several Levy Institute scholars. This conference took place on April 25 and 26, 2014. We thank the organizers of that conference. † hannsgen@levy.org ‡ tyoungtaft@simons-rock.edu If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicatedThe Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. 1 AbstractWe hope to model financial fragility and money in a way that captures much of what is crucial in Hyman Minsky's financial fragility hypothesis. This approach to modeling Minsky may be unique in the formal Minskyan literature. Namely, we adopt a model in which a psychological variable we call financial prudence (P) declines over time following a financial crash, driving a cyclical buildup of leverage in household balance sheets. High leverage or a low safe-asset ratio in turn induces high financial fragility (FF). In turn, the pathways of FF and capacity utilization (u) determine the probabilistic risk of a crash in any time interval. When they occur, these crashes entail discrete downward jumps in stock prices and financial sector assets and liabilities.To the endogenous government liabilities in Hannsgen (2014), we add common stock and bank loans and deposits. In two alternative versions of the wage-price module in the model (wagePhillips curve and chartalist, respectively), the rate of wage inflation depends on either unemployment or the wage-setting policies of the government sector. At any given time t, goods prices also depend on endogenous markup and labor productivity variables. Goods inflation affects aggregate demand through its impact on the value of assets and debts. Bank rates depend...

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A Post Keynesian Alternative to the New Consensus Model

Hein¹,

Stockhammer²

2009

Macroeconomic Theory and Macroeconomic Pedagogy

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Interest rates, income distribution, and monetary policy dominance: Post Keynesians and the "fair rate" of interest

Cited by 114 publications

References 22 publications

Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model

Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model

Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility

A Post Keynesian Alternative to the New Consensus Model

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