On the Microfoundations of Macroeconomics

2013 ◽  
pp. 44-61 ◽  
Author(s):  
Abu Rizvi
Keyword(s):  
General Equilibrium ◽  
Economic Activity ◽  
Aggregate Demand ◽  
Classical Approach ◽  
Asset Accumulation ◽  
John Maynard Keynes ◽  
Ontological Reduction ◽  
Hyman Minsky

In a review of Asset Accumulation and Economic Activity by James Tobin, Hyman Minsky outlined three types of macroeconomic approaches after John Maynard Keynes: the neoclassical synthesis, the New Classical approach, and fundamentalist Keynesian scholarship. Each of the three streams of thought identified by Minsky had trouble finding acceptance. Regarding the fundamentalist Keynesians, Minsky’s third group, this chapter suggests why mainstream economists tended to ignore them, attributing this neglect to a form of dogmatism. The bulk of this chapter, though, focuses on criticism leveled against the two other approaches quite directly, namely, that they had inadequate microfoundations. Unless otherwise stated, the microfoundations referred to in this chapter concern the aggregate manifestations of the general equilibrium (of the Arrow-Debreu type) of maximizing individual agents. Also discussed are the arbitrariness of aggregate demand and its implications, the Sonnenschein-Mantel-Debreu theory, and ontological reduction and explanatory reduction.

Economic effects of monetary policy in Russia: What do large datasets tell us?

2020 ◽  
pp. 31-53 ◽  
Author(s):  
Anna A. Pestova ◽  
Natalia A. Rostova
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Economic Activity ◽  
Global Financial Crisis ◽  
Exchange Rate Regime ◽  
Aggregate Demand ◽  
Economic Effects ◽  
Theoretical Concepts ◽  
Empirical Estimates

Is the Bank of Russia able to control inflation and, at the same time, manage aggregate demand using its interest rate instruments? In other words, are empirical estimates of the effects of monetary policy in Russia consistent with the theoretical concepts and experience of advanced economies? This paper is aimed at addressing these issues. Unlike previous research, we employ “big data” — a large dataset of macroeconomic and financial data — to estimate the effects of monetary policy in Russia. We focus exclusively on the period after the 2008—2009 global financial crisis when the Bank of Russia announced the abandoning of its fixed ruble exchange rate regime and started to gradually transit to an interest rate management. Our estimation results do not confirm standard responses of key economic activity and price variables to tightening of monetary policy. Specifically, our estimates do not reveal a statistically significant restraining effect of the Bank of Russia’s policy of high interest rates on inflation in recent years. At the same time, we find a significant deteriorating effect of the monetary tightening on economic activity indicators: according to our conservative estimates, each of the key rate increases occurred in March and December 2014 had led to a decrease in the industrial production index by about 0.2 percentage points within a year.

scholarly journals Bank Leverage Cycles

2017 ◽  
Vol 9 (2) ◽  
pp. 32-72 ◽  
Author(s):  
Galo Nuño ◽  
Carlos Thomas
Keyword(s):  
Financial Crisis ◽  
Moral Hazard ◽  
General Equilibrium ◽  
Economic Activity ◽  
Asset Returns ◽  
Financial Intermediaries ◽  
Risk Shifting ◽  
Short Term ◽  
Risky Debt

We propose a general equilibrium framework with financial intermediaries subject to endogenous leverage constraints, and assess its ability to explain the observed fluctuations in intermediary leverage and real economic activity. In the model, intermediaries (“banks”) borrow in the form of short-term risky debt. The presence of risk-shifting moral hazard gives rise to a leverage constraint, and creates a link between the volatility in bank asset returns and leverage. Unlike TFP or capital quality shocks, volatility shocks produce empirically plausible fluctuations in bank leverage. The model replicates well the fall in leverage, assets, and GDP during the 2007–2009 financial crisis. (JEL D82, E44, G01, G21, G32)

Helicopter money: survey evidence on expectation formation and consumption behaviour

2019 ◽  
Author(s):  
Uros Djuric ◽  
Michael Neugart
Keyword(s):  
Monetary Policy ◽  
General Equilibrium ◽  
Household Income ◽  
Aggregate Demand ◽  
Economic Outcomes ◽  
Inflation Expectations ◽  
German Population ◽  
Unconventional Monetary Policy ◽  
Representative Survey ◽  
Expectation Formation

Abstract The effects of helicopter money on expectations and economic outcomes are empirically largely unexplored. We fielded a representative survey among the German population, randomly assigning respondents to various unconventional monetary policy scenarios that raise household income. We find that in all policy treatments people spend almost 40% of the transfer, which is a non-trivial share that could increase aggregate demand. Policies do not raise inflation expectations. Differences in how transfers are implemented appear to be mostly irrelevant because of idiosyncratic behaviour by households that largely does not take into account general equilibrium effects and governments’ future policies.

scholarly journals THE ROLE OF FISCAL STIMULUS AND MONETARY EASING IN INDONESIAN ECONOMY DURING GLOBAL FINANCIAL CRISIS: FINANCIAL COMPUTABLE GENERAL EQUILIBRIUM APPROACH

2010 ◽  
Vol 13 (2) ◽  
pp. 165-186 ◽  
Author(s):  
Iskandar Simorangkir ◽  
Justina Adamanti
Keyword(s):  
Economic Growth ◽  
Financial Crisis ◽  
General Equilibrium ◽  
Interest Rates ◽  
Computable General Equilibrium ◽  
Global Financial Crisis ◽  
Aggregate Demand ◽  
Fiscal Stimulus ◽  
Monetary Expansion ◽  
Positive Effects

Global financial crisis started in mid 2008 has reduced global economic growth, and many countries even experienced economic contraction. To deal with economic contraction, various economic policies have been undertaken. Governments have increased fiscal stimulus through increasing expenditure and lowering tax while central banks have cut policy rates substantially. In some countries interest rates even reach zero or close to zero. Similar to many other countries, Indonesia has also undertaken expansionary policies, namely increasing fiscal stimulus and lowering interest rates.This paper examines the impacts of fiscal stimulus and interest rate cut on Indonesian economy using financial computable general equilibrium (FCGE) approach. The estimation results show a number of findings. First, the combination of fiscal expansion and monetary expansion boosts economic growth of Indonesia effectively. Relative to the effectiveness of fiscal expansion without monetary policy expansion or monetary expansion without fiscal expansion, the combination of those two policies is more effective.Second, looking into the components of GDP, the combination of fiscal and monetary expansion has a large multiplier effect, boosting aggregate demand through increasing consumption, investment, government expenditure, exports and imports. Meanwhile, from production side, the combination of fiscal and monetary expansion has positive effects on increasing production of all economic sectors. This effect comes from fiscal incentive (lower tax, lower import duties, etc) in increasing investment. Moreover, the increase in aggregate demand also encourages enterprises to increase their production.Third, institutionally fiscal stimulus and monetary easing has increased income and purchasing power of the poor and rich households in rural and urban area. This increase in turn results in higher all household consumption.JEL Classification: D58, E12, E13, E52, E58, H25, H31, H53, H54Keywords: Fiscal stimulus, monetary easing, financial computable general equilibrium, global financial crisis.

scholarly journals Conflicting Interests and Structural Inflation: TUrkey, 1980-1990

1993 ◽  
Vol 32 (3) ◽  
pp. 303-327 ◽  
Author(s):  
A . Erinc Yeldan
Keyword(s):  
General Equilibrium ◽  
Equilibrium Model ◽  
Computable General Equilibrium ◽  
Aggregate Demand ◽  
General Equilibrium Model ◽  
Equilibrium Analysis ◽  
Nominal Wage ◽  
Credit Expansion ◽  
Price Inflation ◽  
National Output

The paper analyses the structural causes of the recent Turkish inflationary episode. It is argued that monetary policies based on credit tightening alone are not likely to yield the desired target of price stabilisation. Instead. it is hypothesised that the underlying sources of price inflation are affected by income inequality and conflicting claims on national output; and that excessive credit expansion serves mainly to accommodate the inertial inflation thereby originated in the real sector. Given this hypothesis. the paper employs a computable general equilibrium model to investigate four distinct sources of structural inflation for the Turkish economy: (i) the profit/rent inflation based on monopolistic mark-Ups over prime costs; (ii) imported inflation due to the import-dependent structure of the domestic industry; (iii) cost-push and demand inflation due to urban wage claims; and (iv) inflation that results from the fiscal pressures of the government's budget deficits. The general equilibrium model is in the Keynesian tradition in determining the production level by aggregate demand constraints. Furthermore. it accommodates oligopolistic mark-up rules and working capital expenses for price determination. and nominal wage fixity to determine the level of employment. The general equilibrium analysis of the macro economy suggests that. over the analysed period. conflicting claims of various social classes on national output and conflicting rates of intersectoral accumulation warranted by competing producer groups have become important sources of disequilibria in the domestic economy; and that the distributional conflict among socio-economic classes had a direct impact on the formation of price movements.

scholarly journals Macroeconomics Activity and Role of Zaka in Achieving Economic Stability (Aggregate Demand/ Mathematical Analysis Study): الزكاة والنشاط الاقتصادي الكلي ودورهما في تحقيق الاستقرار الاقتصادي (الطلب الكلي/ دراسة تحليلية اقتصادية رياضية)

2021 ◽  
Vol 5 (23) ◽  
pp. 23-1
Author(s):  
Ahmad Mohammad Alsaad, Shatha Musa Al-Rawabdeh Ahmad Mohammad Alsaad, Shatha Musa Al-Rawabdeh
Keyword(s):  
Economic Growth ◽  
Mathematical Analysis ◽  
Economic Activity ◽  
Aggregate Demand ◽  
Graphical Analysis ◽  
Economic Stability ◽  
Analysis Study ◽  
Fund Development ◽  
Fund Investment

This research aimed to clarify and show the economic impact of Zaka fund development through theoretical, mathematical, and graphical analysis on macroeconomics variables which is related to aggregate demand, Researchers used theoretical, mathematical, graphical approaches for explanation economic variables. and used deductive approach through shows the effect of zakat on the aggregate Demand. The researcher concludes that the duty of Zaka induces economic growth and protects the economy from risk fluctuations whether it is recession or inflation. The researcher recommends to work on promoting the revival of Zaka, and the Zakat should be compulsory not voluntary through laws and regulations, ࢫbecause it raises the level of economic activity through its direct effect to stimulate fund investment, raise consumer’s demand and expand the market.

Asset Accumulation and Economic Activity

1982 ◽  
Vol 48 (4) ◽  
pp. 1132
Author(s):  
Robert T. McGee ◽  
James Tobin
Keyword(s):  
Economic Activity ◽  
Asset Accumulation

scholarly journals Phased-In Tax Cuts and Economic Activity

2006 ◽  
Vol 96 (5) ◽  
pp. 1835-1849 ◽  
Author(s):  
Christopher L House ◽  
Matthew D Shapiro
Keyword(s):  
Economic Growth ◽  
General Equilibrium ◽  
Equilibrium Model ◽  
Economic Activity ◽  
Dynamic General Equilibrium ◽  
General Equilibrium Model ◽  
Slow Recovery ◽  
Tax Rate ◽  
Dynamic General Equilibrium Model ◽  
Aggregate Effects

This paper uses a dynamic general equilibrium model to analyze and quantify the aggregate effects of the timing of tax rate changes enacted in 2001 (which called for successive rate reductions through 2006) and 2003 (which made immediate tax rate cuts scheduled for 2004 and 2006). The phased-in nature contributed to the slow recovery from the 2001 recession, while the elimination of the phase-in helped explain the increase in economic activity in 2003. The simulations suggest while the tax policy was a drag on the economy in 2001 and 2002, it increased economic growth in 2003, once phase-ins were eliminated.

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