scholarly journals Involuntary Unemployment in Diamond-Type Overlapping Generations Models

2021 ◽  
Author(s):  
Karl Farmer
Keyword(s):  
Interest Rates ◽  
Public Debt ◽  
Capital Accumulation ◽  
Overlapping Generations ◽  
Aggregate Demand ◽  
Output Growth ◽  
Involuntary Unemployment ◽  
Overlapping Generations Models ◽  
Aggregate Investment ◽  
Diamond Type

Thus far involuntary unemployment does not occur in Diamond-type Overlapping Generations models. In line with Keynesian macroeconomics, involuntary unemployment is traced back to aggregate demand failures. While macro-economists majority refers aggregate demand failures to sticky prices, a minority attributes lacking aggregate demand to not perfectly flexible aggregate investment. The chapter investigates how an independent aggregate investment function causes involuntary unemployment under perfectly flexible competitive wage and interest rates in a Diamond-type neoclassical growth model with public debt and human capital accumulation. Moreover, it is shown that a higher public debt to output ratio enhances output growth and reduces involuntary unemployment.

Involuntary Unemployment in a Neoclassical Growth Model with Public Debt and Human Capital

2018 ◽  
Vol 63 (2) ◽  
pp. 3-34 ◽  
Author(s):  
Karl Farmer ◽  
Stefan Kuplen
Keyword(s):  
Human Capital ◽  
Interest Rate ◽  
Public Debt ◽  
Capital Accumulation ◽  
Output Growth ◽  
Involuntary Unemployment ◽  
Wage Rates ◽  
Aggregate Investment ◽  
Output Ratio ◽  
Diamond Type

Abstract Even more than eight decades since the publication of Keynes’ “General Theory of Employment, Interest, and Money” modern macroeconomists disagree on the notion of “underemployment equilibrium” with so-called “involuntary unemployment”. While the majority of macro theorists trace involuntary unemployment back to frictions and rigidities in the adaptation of wages and output prices to market imbalances, a minority position holds that even under perfectly flexible output prices and wage rates involuntary unemployment might occur. Morishima in “Walras’ Economics” and more recently Magnani presume that contrary to the majority view aggregate investment is not perfectly flexible but governed by “animal spirits” of investors. The aim of the present paper is to integrate the Morishima-Magnani approach into a Diamond-type overlapping generations’ (OLG) model with internal public debt subsequently extended by human capital accumulation. It turns out that in spite of perfectly flexible real wage and interest rate involuntary unemployment occurs in intertemporal general equilibrium when aggregate investor sentiments are too pessimistic regarding the rentability of investment in real capital. In the model extended by human capital a higher public debt to output ratio decreases unambiguously involuntary unemployment, if initially the endogenous output growth rate is higher than the real interest rate.

Why 3 and 60 per cent? The rationale of the reference values for fiscal deficits and debt in the European Economic and Monetary Union

2020 ◽  
Vol 17 (2) ◽  
pp. 111-126
Author(s):  
Jan Priewe
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Reference Values ◽  
Public Debt ◽  
Output Growth ◽  
Policy Framework ◽  
Budget Deficits ◽  
The European Union ◽  
Growth Pact ◽  
Fiscal Compact

The origins of the reference values for budget deficits and public debt (3 and 60 per cent of GDP) in the euro area are explored. Both numbers came into the Maastricht Treaty by coincidence. Later attempts to legitimise them are traced and found unconvincing. In particular the debt cap is scrutinised, often considered as a precondition for debt sustainability. Since the first overhaul of the Stability and Growth Pact in 2005, reference values for structural deficits became the focus of fiscal policy, but derived from the 60 per cent debt cap. With the so-called Fiscal Compact from 2012, caps for structural deficits were added to the semi-primary law of the European Union. It is argued that the reference values for deficits and debt are not consistent. If the Domar equation is observed, the changing relationship between interest rates on public debt and output growth should be included in the fiscal policy framework. Therefore ‘eternal’ reference values for deficits and debt should be removed from the primary law by Treaty amendments.

scholarly journals The Brazilian deindustrialization: financialization is not guilty

2015 ◽  
Vol 35 (2) ◽  
pp. 227-246 ◽  
Author(s):  
MYLÈNE GAULARD
Keyword(s):  
Interest Rates ◽  
Public Debt ◽  
Capital Accumulation ◽  
Profit Rate ◽  
Treasury Bonds ◽  
The Public ◽  
High Interest ◽  
Productive Area ◽  
Very High

The financialization of the Brazilian economy is often criticized as being responsible of the slowdown of capital accumulation in this country. Indeed, very high interest rates are maintained in order to finance the public debt, and this fosters capitalists to get more Treasury bonds rather than to invest in the productive area. Nevertheless, the evolution of the profit rate in this area also explains the particular relation existing between capitalists, finance and productive investment, as Marx showed it more than a century ago.

scholarly journals Demand-led growth and functional income distribution in Brazil from 1952 to 2017

Nova Economia ◽  
2021 ◽  
Vol 31 (1) ◽  
pp. 7-38
Author(s):  
Joana David Avritzer ◽  
Fabio Neves Perácio de Freitas ◽  
Julia De Medeiros Braga
Keyword(s):  
Income Distribution ◽  
Capital Accumulation ◽  
Aggregate Demand ◽  
Output Growth ◽  
Growth Effect ◽  
Empirical Literature ◽  
Wage Share ◽  
Growth Regime ◽  
Long Run ◽  
Relationship Of

Abstract This work aims to investigate the effect of changes in functional income distribution on growth in Brazil from 1952 to 2017. Following the neo-Kaleckian and Supermultiplier growth and distribution theories, it is possible to obtain two types of such effects. First, a level effect, predicted by both models, establishes a direct relationship of the wage share on the level of output through changes in the components of aggregate demand. Secondly, a growth effect occurs only in the neo-Kaleckian models and is the causal relationship between the wage share and output growth through the rate of capital accumulation. We analyzed the presence of these two effects in the empirical literature and found no evidence of a long run growth regime through capital accumulation as would be expected in the neo-Kaleckian model. However, we find empirical evidence that investment is an induced component of demand as is expected in the Supermultiplier model.

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.

Secular stagnation in the modern world

2018 ◽  
pp. 125-141 ◽  
Author(s):  
S. M. Drobyshevsky ◽  
P. V. Trunin ◽  
A. V. Bozhechkova
Keyword(s):  
Public Debt ◽  
Capital Accumulation ◽  
Technological Development ◽  
Japanese Economy ◽  
Modern World ◽  
Key Factors ◽  
Destruction Process ◽  
Secular Stagnation ◽  
The Impact

The paper studies the factors of secular stagnation. Key factors of long-term slowdown in economic growth include the slowdown of technological development, aging population, human capital accumulation limits, high public debt, creative destruction process violation etc. The authors analyze key theoretical aspects of long-term stagnation and study the impact of these factors on Japanies economy. The authors conclude that most of the factors have significant influence on the Japanese economy for recent decades, but they cannot explain all dynamics. For Russia, on the contrary, we do not see any grounds for considering the decline in the economy since 2013 as an episode of secular stagnation.

Human capital accumulation, income distribution, and economic growth: a demand-led analytical framework

2021 ◽  
Vol 9 (3) ◽  
pp. 319-336
Author(s):  
Gilberto Tadeu Lima ◽  
Laura Carvalho ◽  
Gustavo Pereira Serra
Keyword(s):  
Human Capital ◽  
Capital Accumulation ◽  
Analytical Framework ◽  
Output Growth ◽  
Human Capital Accumulation ◽  
Capital Utilization ◽  
Tax Rate ◽  
Long Run ◽  
The Impact ◽  
Long Run Equilibrium

This paper incorporates human capital accumulation through provision of universal public education by a balanced-budget government to a demand-driven analytical framework of functional distribution and growth of income. Human capital accumulation positively impacts on workers’ productivity in production and their bargaining power in wage negotiations. In the long-run equilibrium, a rise in the tax rate (which also denotes the share of output spent in human capital formation) lowers the pre- and after-tax wage share and physical capital utilization, and thus raises (lowers) the output growth rate when the latter is profit-led (wage-led). The impact of a higher tax rate on the employment rate (which also measures human capital utilization) in the long-run equilibrium is negative (ambiguous) when output growth is wage-led (profit-led). In any case, the supply of higher-skilled workers does not automatically create its own demand.

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