Eckhard Hein

The Macroeconomics of Finance-Dominated Capitalism – and its Crisis

In this timely and thought-provoking book, Eckhard Hein illustrates that the Great Recession, which hit the world economy in 2008/09, is rooted in the contradictions of finance-dominated capitalism. The author provides an in-depth exploration of the macroeconomics of finance-dominated capitalism, its problems and its crisis, and presents economic policy lessons and alternatives.

Interest rate, debt, distribution and capital accumulation in a post-Kaleckian model

The introduction of monetary variables into post-Keynesian models of distribution and growth is an ongoing process. Lavoie (1995) has proposed a Kaleckian ?Minsky-Steindl-model? of distribution and growth, incorporating the effects debt and debt services have on short and long run capital accumulation. This attempt, however, can be extended because neither has the rate of capacity utilisation been endogenously determined, nor have the potential effects of interest rate variations on distribution between wages and gross profits explicitly been incorporated in the model. In the present paper we therefore augment Lavoie?s ?Minsky-Steindl-model?, building our analysis on a Kaleckian distribution and growth model which has already taken into account distribution effects of interest rate variations on the short run equilibrium. Into this model the effects of debt and debt services are explicitly introduced, the effects of interest rate variations on the short and the long run equilibrium are derived, and the results are compared to those of Lavoie?s ?Minsky-Steindl-model?. It is shown, that the effects of interest variations on the endogenously determined equilibrium values of the model do not only depend on the parameter values in the savings and investment functions but also on initial conditions with respect to the interest rate and the debt-capital-ratio.

Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model

New Consensus Models (NCMs) have been criticised by Post-Keynesians for a variety of reasons, and amendments or alternatives have been presented. The present paper attempts to provide a Post-Keynesian alternative model to the NCM. The model consists of three classes: rentiers, firms and workers. It has a short-run inflation barrier derived from distribution conflict between these classes, which is endogenous in the medium run. Distribution conflict affects not only inflation but also income shares. On the demand side, the income classes have different saving propensities. We apply a Kaleckian investment function with expected sales and internal funds as major determinants. The paper analyses short-run stability and includes medium-run endogeneity channels for the Non-Accelerating-Inflation-Rate-of-Unemployment, or NAIRU: persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. From the model, Post-Keynesian policy rules are derived. We argue that improved employment without increasing inflation will be possible if macroeconomic policies are coordinated along the following lines: the central bank targets distribution, wage bargaining parties target inflation and fiscal policies are applied for short- and medium-run real stabilisation purposes.

Globalization and the effects of changes in functional income distribution on aggregate demand in Germany

Germany has experienced a period of extreme nominal and real wage moderation since the mid‐1990s. Contrary to the expectations of liberal economists, this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989). The size of the foreign demand effect will critically depend on the degree of openness of the economy. This paper aims at estimating empirically the demand side of a Bhaduri and Marglin (1990) type model for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran, and Ederer (2009) and Hein and Vogel (2008, 2009). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.

European Monetary Union: nominal convergence, real divergence and slow growth?

Abstract It is now widely acknowledged that the structural characteristics of the countries to form the European Monetary Union (EMU) did not meet the conditions of an optimum currency area (OCA) when the euro was introduced in 1999. The OCA criteria appear to have little relevance for monetary integration, because they fail to capture the importance of macroeconomic policy institutions for growth and convergence across a currency union. This paper examines the effects of the EMU framework for monetary, fiscal and wage policies on overall growth and on convergence across the euro area. It is concluded that the years before and after the introduction of the euro were characterized by a restrictive policy mix that has not been conducive to aggregate growth nor to real convergence.

Harrodian Instability and the ‘Normal Rate’ of Capacity Utilization in Kaleckian Models of Distribution and Growth - A Survey

Starting from potential Harrodian instability in the Kaleckian distribution and growth model we survey Kaleckian reactions put forward to avoid or to cope with this instability. We show that, contrary to the position taken by the critics of the Kaleckian model, this model is capable of maintaining an endogenous rate of capacity utilization, the paradox of thrift and the paradox of costs in the long run, even if the problem of Harrodian instability arises. We conclude that Kaleckian models are more flexible than their Harrodian and Marxian critics suppose when attacking the simple textbook version.

Interest rates, distribution and capital accumulation – A post-Kaleckian perspective on the US and Germany

We analyse the effects of interest rate variations on the rates of capacity utilisation, capital accumulation and profit in a simple post-Kaleckian distribution and growth model. This model gives rise to different potential accumulation regimes depending on the values of the parameters in the investment, saving and distribution function. Estimating these core behavioural equations for the US and Germany in the period 1960–2007, we find significant and robust effects of interest payments with the expected sign in each of the equations. Our estimation results imply, both for the US and for Germany, that the effects of changes in the real long-term rate of interest on the equilibrium rates of capacity utilisation, capital accumulation and profits, are characterised by the ‘normal regime’: rising long-term real rates of interest cause falling rates of capacity utilisation, capital accumulation and profits, as well as redistribution at the expense of labour income and hence an increasing profit share in both countries.

Interest, Debt and Capital Accumulation—A Kaleckian Approach

Abstract In the present paper we explicitly introduce interest payments and debt into a Kaleckian distribution and growth model with an investment function very close to Kalecki’s original writings. This implies that growth in this model is ‘wage‐led’. The effects of interest rate variations on the short‐run equilibrium values of capacity utilisation, capital accumulation and the rate of profit are derived, and the long‐run effects on the equilibrium debt–capital ratio are analysed. It is shown, that the effects of interest variations on the endogenously determined real equilibrium values of the model do not only depend on the parameter values in the saving and investment functions but also on the interest elasticity of distribution and in some cases on initial conditions with respect to the interest rate and the debt–capital ratio. If the conditions for short‐run ‘normal’ effects of interest rate variations are given, the economy will be characterised by a long‐run unstable debt–capital ratio and by the macroeconomic ‘paradox of debt’. These results are similar to other models in the tradition of Kalecki and hint to the robustness of Kaleckian ‘monetary’ distribution and growth models with respect to the concrete specification of the investment function.

Regimes of Interest Rates, Income Shares, Savings and Investment: A Kaleckian Model and Empirical Estimations for some Advanced OECD Economies

The first part of the paper deals with the effects of an exogenous variation in the monetary interest rate on the real equilibrium position of the economic system in a Kaleckian effective demand model. Different regimes of accumulation are derived and it is shown that a negative relation between the interest rate and the equilibrium rates of capacity utilization, accumulation and profit usually expected in post-Keynesian theory only exists under special conditions. In the second part the model is applied to the data of some major OECD countries, the relevant coefficients are estimated and the relevance for an explanation of the course of GDP and capital stock growth since the early 1960s is discussed. Copyright Blackwell Publishing Ltd 2003.

What ever happened to Germany? Is the decline of the former european key currency country caused by structural sclerosis or by macroeconomic mismanagement?

This paper challenges the institutional sclerosis view of the German crisis according to which rigid labour markets and generous welfare state institutions have driven Germany into its position as ‘Europes sick man’. In general, the view is not convincing, because the underlying hypotheses about the effects of labour market regulation and welfare state institutions on employment and growth cannot unambiguously be derived from modern labour market theory and are at least partially at odds with accepted empirical findings. In particular, the explanation is unconvincing, because in international comparison Germanys labour market and welfare state institutions are simply not as sclerotic as often supposed. In most of the aggregate indicators for structural rigidities Germany is not worse than the average OECD or EU country. Moreover, there is a macroeconomic explanation focusing on the combined effects of restrictive and pro‐cyclical monetary, fiscal and wage policies in Germany that is broadly consistent with modern macroeconomic theory and is supported by empirical data.