Amit Bhaduri

A Model of Interaction between the Virtual and the Real Economy

This paper demonstrates through a formal model how the wealth effect created by a stock market boom leads to the expansion of demand and output mostly through debt-financed private consumption. However, inherent in this expansion is the threat of a subsequent contraction caused by the rising burden of servicing debt and falling creditworthiness. The formal analysis captures more precisely these conditions; it shows that, even in the medium run, the growth rates of the wealth in the stock market and of the real economy may move in opposite directions.

A contribution to the theory of financial fragility and crisis

The paper examines three aspects of a financial crisis of domestic origin. The first section studies the evolution of a debt-financed consumption boom supported by rising asset prices, leading to a credit crunch and fluctuations in the real economy, and, ultimately, to debt deflation. The next section extends the analysis to trace gradual evolution toward Ponzi finance and its consequences. The final section explains the link between the financial and the real sector of the economy, pointing to an inherent liquidity problem. The paper concludes with comments on the interactions between the three aspects.

The Evolution of Land Relations in Eastern India under British Rule

The economist’s habit of building wodels can admittedly lead to&dquo;gr6ss overflsimplifications in economic history, ’ Nevertheless, the clear logital str~eture of a model at least sharper~srth~e tissues, to be discussed and in this sense may ’(provide’the basis for aineanirigfùl symbiosis of e16no£ic aiid historical research. The present paper is an attempt in that direction : its ’purpose is to interpret some bro4d.,historical :tn~nds, jn, _the evolution of the Zamindari System in the light of analytical economic argument. ~ s r; . ’

Optimal price adjustment under imperfect information

Abstract Variations in cost and demand do not have symmetrical impact on the optimal price of the imperfectly competitive firm. This asymmetry is not so important as long as information regarding both cost and demand is sufficient. However, it becomes crucially important in case of incomplete information. Usually firms have more complete or ‘harder’ information on cost than on demand. This difference in information status on the cost and on the demand side can explain both cost-based pricing and slow price adjustment to demand in an optimizing framework with Bayesian learning about changed demand conditions.

Labour-Market Flexibility and Economic Expansion

The major economies of Western Europe have been facing almost chronic unemployment, often hovering around double digits, for nearly two decades now. This is especially true of Germany, which acted as the economic powerhouse in the consolidation of the European Union. It is all the more paradoxical that advanced market democracies can live with high unemployment placing relatively little emphasis on this problem, except perhaps at times of elections. A deep change in the climate of opinion has occurred in striking contrast to the post-Second World War years, when the pursuit of full employment was the agreed policy objective of almost all shades of political opinion. History is seldom mono-causal; several causal factors and processes usually coincide at a particular juncture of time to bring about such a dramatic change in the climate of opinion.

Chaotic implications of the natural rate of unemployment

Abstract By means of a discrete time, dynamic model this paper shows that, despite correct short-term expectations about price change by all agents concerned, the economy may exhibit chaotic behaviour rather than convergence to a natural, equilibrium rate, when wage bargain takes place according to the usual specification of the Phillips curve while firms maximize profit. The lack of coordination between profit-maximizing firms and wage-bargaining workers may result in an irregular dynamic path which questions whether the natural rate, even if it exists, is at all knowable in these circumstances.

On the Systemic Fragility of Finance‐Led Growth

The paper sets up a model of economic crisis by investigating the role played by movement in asset price as a driver of the dynamic interaction between the real and the financial sectors. Such movement influences income determination in the real economy in the short period through aggregate demand leading to the emergence of two macroeconomic regimes. A short period flow model, underpinned by the stock flow consistent accounting framework, is developed to formalize the dynamics of interaction between real and financial sectors mediated by movement in asset price, generates bistability, abrupt crashes, and systemic fragility in the macroeconomic regimes.

On studying agricultural performance in India: what the sociologist could do for the economist

are selected, posed and analysed. Indeed, in extreme cases, such conventions may force upon the researcher a kind of formalism that is counterproductive of genuine understanding. What matters, then, is not the importance or relevance of the issue under consideration, but the level of formal skill, according to the conventions set by each discipline, with which the issue can be analysed. In brief, ’skill-fetishism’ becomes the very basis for an artificial partitioning of knowledge into disciplines. This has two rather important consequences. First, problems are often chosen, not with a view to their social importance, as judged by the researcher himself, but with a view to the level of skill that can be used to analyse them. Secondly, it is usually easier for an average researcher to display his level of skill in relation to a well-structured problem. Thus, problems get chosen usually from articles and books, rather than from the

What remains of the theory of demand management in a globalising world

This article explains a curious redirection of economic policies that uses the policy framework of Kalecki and Keynes only to undermine it. It does not negate their theory of demand management, but reformulates it to serve the powerful interests of finance in the era of financial globalisation. As a result, accountability to finance rather than to the citizens becomes more important for democratic governments, and credit rating dominates democratic performance.1

Legal and Illegal Production and Trade Under Monopoly with Transaction Cost

Using illegal trade in narcotics as an example, where regular seizure of part of the merchandise by the law-enforcing authorities imposes a transaction cost on the monopolist supplier, this paper demonstrates the result that a higher transaction cost might increase the volume supplied for trade. The result of the formal model also applies to the opposite situation, e.g. when trade is legal, as in seventeenth- and eighteenth-century maritime trade, but pirates illegally seize part of the merchandise to impose a transaction cost on the traders. The more general implications of this analysis are also discussed.