Frontiers of Heterodox Macroeconomics (eBook)

Preface 6
Contents 8
Notes on Contributors 10
List of Figures 17
List of Tables 20
1 Critique of the New Consensus Macroeconomics and a Proposal for a More Keynesian Macroeconomic Model 22
1Introduction 22
2New Consensus Macroeconomics and Policy Implications 23
2.1The Open Economy NCM Model 23
2.2Economic Policy Implications of the NCM Model 27
2.3Assessing the New Consensus Macroeconomics 28
3Our Theoretical Macroeconomic Model 35
3.1The Model 35
3.2Economic Policies 45
3.2.1 Distributional Policies 46
3.2.2 Financial Stability Policies 49
4Summary and Conclusions 56
References 57
2 Approaching Budget Deficits, Debts and Money in a Socially Responsible Manner 66
1Introduction 66
2Money Creation and Budget Deficits 68
3‘People’s Quantitative Easing’ 74
4The Tarnished ‘Golden Rule of Public Finance’ 77
5What Should the Budget Position Be and How Should It Be Funded? 79
6Political and Social Obstacles to Full Employment Budget Deficit 87
7On Multipliers and Expansionary Austerity 89
8Structural Budgets 93
9On Interest Rates and Fiscal Policy 96
10Sustainability of Debt 97
11Fiscal Space 100
12Summary and Conclusions 101
References 104
3 Advances in the Post-Keynesian Analysis of Money and Finance 109
1Introduction 109
2Horizontalist Advances 111
2.1Endogenous Money and Interest Rate Targeting 111
2.2Reversed Causality and the Defensive Behaviour of the Central Bank 114
2.3Modern Money Theory (MMT) and the Relationship Between the Government and the Central Bank 116
2.4The Compensation Thesis and Foreign Exchange Reserves 119
3Unconventional Monetary Policies 121
3.1Quantitative Easing 121
3.2Other Alternative Monetary Policies 125
4Three Views of Banking 128
4.1The Two Mainstream Views 128
4.2The Post-Keynesian Credit Creation View of Banking 130
5Structuralist Advances 132
5.1Credit Creation Versus Liquidity Creation 132
5.2Shadow Banks and the Credit Boom 135
5.3Are There Limits to the Creation of Bank Credit? 139
5.4A Multiplicity of Interest Rates 142
6Summary and Conclusion 144
References 145
4 Why the Subprime Financial Crash Should Have Been Prevented and Implications for Current Macroeconomic and Regulatory Policy 150
1Introduction 150
2Securitisation and the Failure to Regulate Derivatives 152
2.1Early Warnings That Were Ignored 155
3The Collapse of Long-Term Capital Management: The Canary in the Mine 158
4The Forgotten Banking Crisis: The Savings and Loans Debacle, 1980–1989 163
4.1The Early Years of the S& Ls
4.2Reactions to the Immediate Crisis 166
4.3How Did Control Fraud, or Looting, Occur and How Widespread Was It? 168
5Fraud and Malfeasance in the Banking Industry 170
5.1Too Big to Jail and Moral Hazard 173
5.2The Case of HSBC and Fraud Post-2008: What Needs to Be Done? 175
6The Aftermath of the Subprime Crisis: The New Regulatory Environment 178
6.1The Dodd-Frank Act 178
6.2Stress Testing: How Effective Is It? 182
6.3Credit Default Swaps and the Dodd-Frank Act: A Phoenix Rising from the Ashes? 184
7Summary and Conclusions 185
References 186
5 Inflation: Failures of Inflation Targeting—A European Perspective 192
1Introduction 192
2Monetary Policy: Historical Settings and Macroeconomic Implications 195
2.1Framing the Historical Setting: When Inflation Got into the Centre of Macroeconomics Analysis 195
2.2Monetary Theory: Paving the Way for Inflation Targeting 199
2.3The Set-Up of Inflation Targeting 204
2.3.1 Prerequisites for Implementing Inflation Targeting and Additional Effects of the System 205
Central Bank Independence 206
Sound Financial System 207
Credibility of Monetary Policy 208
2.3.2 The ‘Action Plan’ of Inflation Targeting Within the New Consensus Framework 208
3Dead Ones Live Longer: Empirical Evidences and Challenges After the Financial Crisis 210
3.1Forms of Reshaping 213
3.1.1 Add-Ons to the System of Inflation Targeting 214
4Post-Keynesian Critique and Alternatives 214
4.1Reframing the Underlying Paradigm 215
4.2Institutional and Structural Set-Up 216
4.3Stepping Back from the Taylor Rule 220
5Inflation Targeting After the Global Financial Crisis: Are Low Interest Rates What the Post-Keynesian Approach Demanded? 222
5.1Asset Prices Developments: Housing and Its Immediate Effects for Redistribution 223
5.2How Sound Is the New Buffer Regime of the European Banking Union? 226
5.3Monetary Policy and Government Bonds 228
6Summary and Conclusions 230
Appendix 231
References 233
6 Stock-Flow Consistent Dynamic Models: Features, Limitations and Developments 241
1Introduction 241
2Origins of the SFC Approach 243
3SFC Models: Definition and Main Features 246
4SFC vs. DSGE Models: A Comparison 250
5Recent Developments in SFC Modelling 255
5.1E-SFC Models 256
5.2MC-SFC Models 257
5.3Eco-SFC Models 264
6An Eco-2C-SFC Model Prototype 272
7Concluding Remarks 280
Appendix: Eco-2C-SFC Model Equations 281
References 288
7 Fiscal Policy and Ecological Sustainability: A Post-Keynesian Perspective 295
1Introduction 295
2Which Are the Key Green Fiscal Policies? 297
3Modelling Green Fiscal Policies 299
4The DEFINE Model 309
5A Comparative Evaluation of Green Fiscal Policies 314
6Conclusions and Directions for Future Research 330
References 333
8 Secular Stagnation and Income Class Structure in Europe: Policy and Institutional Implications 341
1Introduction 341
2Understanding the Debate on Secular Stagnation and Its Links with Inequality 343
3Growth and Income Distribution: A Complex Relationship 350
4Income Class Structure in European Countries 355
5Levels of Economic Growth and Income Class Structure in European Countries 361
6Tackling Stagnant Growth and Inequality Simultaneously: Some Policy and Institutional Considerations 372
7Summary and Concluding Remarks 377
Appendix 378
References 382
Index 389