Was Keynesian economics ever dead? If so, has it been resurrected?

2020 ◽  
Vol 8 (1) ◽  
pp. 46-60
Author(s):  
Steven M. Fazzari
Keyword(s):  
Interest Rates ◽  
Great Recession ◽  
Supply Side ◽  
Demand Side ◽  
Short Term ◽  
Natural Rate ◽  
The Great Recession ◽  
Keynesian Economics ◽  
Natural Rate Of Interest ◽  
Short Run

This article reflects on rising interest in Keynesian macroeconomics in the aftermath of the Great Recession. I identify aspects of Keynesian thinking that never were completely banished from the mainstream as well as threads of Keynesian macroeconomics that have become more influential since the crisis. However, the way most mainstream analysis continues to invoke the zero lower bound for short-term interest rates and the concept of the ‘natural’ rate of interest implies that any Keynesian resurrection outside of heterodoxy remains incomplete. The future may bring broader recognition of how demand leads economic growth and of ways in which the demand side leads the supply side beyond the typical textbook ‘short run.’

Genossenschaftsbanken – Solides Kreditwachstum während der Coronapandemie

2021 ◽  
Vol 90 (2) ◽  
pp. 67-80
Author(s):  
Andreas Bley ◽  
Martin Micheli
Keyword(s):  
Great Recession ◽  
Debt Crisis ◽  
Bank Lending ◽  
Bank Loans ◽  
Supply Side ◽  
Demand Side ◽  
The Great Recession ◽  
Kleine Und Mittlere Unternehmen ◽  
Cooperative Banks ◽  
Generous Credit

Kleine und mittlere Unternehmen in Deutschland haben auch während der Coronapandemie einen sehr guten Zugang zur Kreditfinanzierung. Hierauf deuten sowohl Umfragen unter Unternehmen als auch unter Banken hin. Der sehr gute Kreditzugang manifestiert sich in einem kräftigen Kreditwachstum während der Krise. Insbesondere die genossenschaftliche Kreditvergabe wächst seit vielen Jahren, auch während Rezessionen, mit robusten Raten. Im Rahmen eines Ungleichgewichtsmodells zeigen wir, dass die Kreditvergabe genossenschaftlicher Banken in der Coronapandemie durch die Nachfrage bestimmt wurde. Es gibt keine Anzeichen für angebotsseitige Beschränkungen der genossenschaftlichen Kreditvergabe. German small and medium corporations had sufficiently access to bank loans during the Corona Pandemic. This is the result of surveys conducted among corporations and banks. A strong growth of bank loans points at generous credit provisions by German banks. Especially bank lending by cooperative banks has been remarkably robust in recent years and has expanded during the Great Recession as well as the European Debt Crisis. In a disequilibrium model, we show that cooperative banks’ loan volumes during the Corona Pandemic have been determined by the demand side. There is no evidence for supply side restrictions.

scholarly journals The fallacy of the natural rate of interest and zero lower bound economics: why negative interest rates may not remedy Keynesian unemployment

2019 ◽  
Vol 7 (2) ◽  
pp. 151-170 ◽  
Author(s):  
Thomas I. Palley
Keyword(s):  
Lower Bound ◽  
Interest Rates ◽  
Market Imperfections ◽  
Zero Lower Bound ◽  
Natural Rate ◽  
Keynesian Economics ◽  
Negative Interest Rates ◽  
Nominal Interest Rates ◽  
Natural Rate Of Interest ◽  
Keynesian Unemployment

This paper provides a critique of zero lower bound (ZLB) economics which has become the new orthodoxy for explaining stagnation. ZLB economics is an extension of pre-Keynesian economics which attributes macroeconomic dysfunction to rigidities and market imperfections. The ZLB is the latest rigidity in that pre-Keynesian tradition. The paper argues negative nominal interest rates, even if feasible, may be unable to remedy Keynesian demand shortage unemployment, and might even aggravate the problem. That is because there exist non-reproduced assets whose return dominates that of investment, and saving may also increase in response to negative rates. Consequently, there may be no natural rate of interest.

scholarly journals The Natural Rate of Interest and Its Usefulness for Monetary Policy

2014 ◽  
Vol 104 (5) ◽  
pp. 37-43 ◽  
Author(s):  
Robert Barsky ◽  
Alejandro Justiniano ◽  
Leonardo Melosi
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Lower Bound ◽  
Great Recession ◽  
State Of The Art ◽  
The United States ◽  
Natural Rate ◽  
The Great Recession ◽  
Natural Rate Of Interest ◽  
Comparable Magnitude

We estimate a state-of-the-art DSGE model to study the natural rate of interest in the United States over the last 20 years. The natural rate is highly procyclical, and fell substantially below zero in each of the last three recessions. Although the drop was of comparable magnitude across the three recessions, the decline was considerably more persistent in the Great Recession. We discuss the usefulness and limitations, particularly due to the zero lower bound, of the natural rate for the conduct of monetary policy.

The Great Recession in the Shadow of the Great Depression: A Review Essay on Hall of Mirrors: The Great Depression, the Great Recession, and the Uses and Misuses of History, by Barry Eichengreen

2017 ◽  
Vol 55 (4) ◽  
pp. 1583-1601 ◽  
Author(s):  
Lee E. Ohanian
Keyword(s):  
Great Depression ◽  
Great Recession ◽  
Review Essay ◽  
Aggregate Demand ◽  
Supply Side ◽  
Demand Side ◽  
Fiscal Deficits ◽  
The Great Recession ◽  
The Great Depression

This essay compares the Great Depression to the Great Recession in light of Barry Eichengreen's new book Hall of Mirrors. Eichengreen discusses these two episodes from a historical, Keynesian perspective, and concludes that policies that increase aggregate demand, such as larger fiscal deficits, would have promoted a much stronger and faster recovery from the Great Recession. I review these episodes from a neoclassical approach, which provides a very different perspective on why recoveries from these episodes were so slow and incomplete. I also argue that supply-side policies, rather than demand-side policies, are more likely to restore prosperity today. (JEL E32, E52, E62, F44, G01, N12, N22)

scholarly journals Money and credit during normal times and house price booms: evidence from time-frequency analysis

Empirica ◽  
2019 ◽  
Vol 47 (4) ◽  
pp. 835-861
Author(s):  
Maciej Ryczkowski
Keyword(s):  
Great Recession ◽  
House Prices ◽  
House Price ◽  
Industrialized Countries ◽  
Time Frequency ◽  
The Great Recession ◽  
Time Period ◽  
Price Boom ◽  
The Us ◽  
Short Run

Abstract I analyse the link between money and credit for twelve industrialized countries in the time period from 1970 to 2016. The euro area and Commonwealth Countries have rather strong co-movements between money and credit at longer frequencies. Denmark and Switzerland show weak and episodic effects. Scandinavian countries and the US are somewhere in between. I find strong and significant longer run co-movements especially around booming house prices for all of the sample countries. The analysis suggests the expansionary policy that cleans up after the burst of a bubble may exacerbate the risk of a new house price boom. The interrelation is hidden in the short run, because the co-movements are then rarely statistically significant. According to the wavelet evidence, developments of money and credit since the Great Recession or their decoupling in Japan suggest that it is more appropriate to examine the two variables separately in some circumstances.

Determinants of Treasury-LIBOR Swap Spreads

2005 ◽  
Vol 08 (04) ◽  
pp. 687-705 ◽  
Author(s):  
D. K. Malhotra ◽  
Vivek Bhargava ◽  
Mukesh Chaudhry
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Default Risk ◽  
Yield Curve ◽  
Short Term ◽  
Long Run ◽  
Interest Rate Volatility ◽  
Short Run ◽  
Using Data ◽  
Swap Spreads

Using data from the Treasury versus London Interbank Offer Swap Rates (LIBOR) for October 1987 to June 1998, this paper examines the determinants of swap spreads in the Treasury-LIBOR interest rate swap market. This study hypothesizes Treasury-LIBOR swap spreads as a function of the Treasury rate of comparable maturity, the slope of the yield curve, the volatility of short-term interest rates, a proxy for default risk, and liquidity in the swap market. The study finds that, in the long-run, swap spreads are negatively related to the yield curve slope and liquidity in the swap market. We also find that swap spreads are positively related to the short-term interest rate volatility. In the short-run, swap market's response to higher default risk seems to be higher spread between the bid and offer rates.

scholarly journals Financial shocks and inflation dynamics

2021 ◽  
pp. 1-29
Author(s):  
Angela Abbate ◽  
Sandra Eickmeier ◽  
Esteban Prieto
Keyword(s):  
Financial Crisis ◽  
Great Recession ◽  
Policy Implication ◽  
Vector Autoregressive Model ◽  
Financial Shocks ◽  
Trade Off ◽  
Vector Autoregressive ◽  
The Great Recession ◽  
Short Run ◽  
Dual Mandate

Abstract We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the “missing disinflation” during the Great Recession. We apply a Bayesian vector autoregressive model to US data and identify financial shocks through a combination of narrative and short-run sign restrictions. Our main finding is that contractionary financial shocks temporarily increase inflation. This result withstands a large battery of robustness checks. Negative financial shocks help therefore to explain why inflation did not drop more sharply in the aftermath of the financial crisis. Our analysis suggests that higher borrowing costs after negative financial shocks can account for the modest decrease in inflation after the financial crisis. A policy implication is that financial shocks act as supply-type shocks, moving output and inflation in opposite directions, thereby worsening the trade-off for a central bank with a dual mandate.

scholarly journals What Employers Want from Interns: Demand-Side Trends in the Internship Market

2020 ◽  
Author(s):  
Carrie Shandra
Keyword(s):  
Labor Market ◽  
Great Recession ◽  
Career Transition ◽  
The United States ◽  
Demand Side ◽  
Entry Level ◽  
The Great Recession ◽  
Education Experience ◽  
College Career ◽  
Skill Requirements

Internships have become a ubiquitous component of the college-career transition, yet empirical evidence of the internship market is limited. This study uses data from 1.3 million internship postings collected between 2007-2016 in the United States to (1) identify trends in internship education, experience, and skill requirements over the Great Recession and recovery periods; (2) evaluate how these trends correspond to those observed in the traditional labor market; and (3) assess robustness across labor market sectors. Results indicate that internship education and skill requirements increased substantially throughout the recession and recovery periods, indicative of a longer-term structural shift in employer expectations about internship hiring. Additionally, growth in internship education and skill requirements largely outpaced growth in non-internship education and skill requirements over the same period, suggesting potential substitution of non-interns with interns. Post-recession employers still consider internships to be entry-level positions—yet now expect interns to have skills in hand.

Natural Interest Rate: Sraffa Vs. Hayek Debates

2019 ◽  
Vol 2019 (3) ◽  
pp. 3-16
Author(s):  
Aleksandr Kovalev
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Economic Thought ◽  
Business Cycle Theory ◽  
Natural Rate ◽  
Main Method ◽  
Natural Rate Of Interest ◽  
History Of ◽  
The Impact

This article deal with the discussion between F. Hayek and P. Sraffa in the 1930s. This piece of the history of economic thought is not presented in the Russian-speaking literature. The main method is a content analysis. The directions of criticism Hayek’s business cycle theory by Sraffa and the response towards is analyzed in the paper. The author compared the opponents’ approaches to the essence of the equilibrium, to the savings-investments equality, to the possibility to lose capital as a result of malinvestments, to the role of expectations, and to the natural rate of interest. A version was offered for explaining the ineffectiveness of Hayek's answer to the question on the multiplicity of natural interest rates and the reasons why the barter economy has been perceived as theoretical basis of the Hayekian analysis. It is the inaccurate wording of the natural interest rate and the representation the theory within the framework of the equilibrium paradigm. The findings of the research may be applied to analyze the impact of interest rate regulation on the economic.

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