Louis-Philippe Rochon

Inflation targeting, economic performance, and income distribution: a monetary macroeconomics analysis

Since the adoption of inflation targeting in New Zealand in 1990, a number of developed as well as developing and emerging market economies have followed suit. Often the sole goal of central bank policies, the strategy of inflation targeting is to reduce the inflation rate and, in some cases, also reduce interest rates and output volatilities. Yet, while there is some evidence that these objectives have not been reached, we intend to look at the impact of inflation targeting on the distribution of income, more specifically on the wage share. Our conclusions show that there appears to be a decline in the wage share in the countries that have adopted an inflation-targeting regime.

The New Consensus and Post-Keynesian Interest Rate Policy

Abstract This paper outlines the fundamental arguments of the New Consensus, critiques it from a Post-Keynesian perspective, and offers a Post-Keynesian alternative to the Taylor Rule. While Post-Keynesian economics provides a theory of endogenous money with exogenous interest rates, it has no clear description of a central bank reaction function. We attempt to remedy this oversight by identifying some of the difficulties attached to developing a Post-Keynesian reaction function, and suggesting an approach to the setting of interest rates that is more consistent than the Taylor Rule with Keyness General Theory.

Cambridge's Contribution to Endogenous Money: Robinson and Kahn on credit and money

It is often claimed by American Post Keynesians that the theories of endogenous money originated in the mid-1950s as a result of articles published by Nicholas Kaldor and Hyman Minsky. This paper offers another possibility. It argues that, in the mid-1950s, both Joan Robinson and Richard Kahn offered insights into the workings of a credit economy that have been largely ignored by Post Keynesians and that are consistent with Post Keynesian monetary theory.

Money Creation and the State: A Critical Assessment of Chartalism

The article discusses various issues related to money creation and the state. Chartalists believe that attempts at separating the central banks and the treasurys functions is merely confused discussion. Indeed, as economist L. Wray clearly states in response to previous critiques, it should be obvious, but it usually does not appear to be so that central bank liabilities do not differ in any significant degree from treasury liabilities; in other words, they can treat both as essentially high powered money or liabilities of the state. In this sense, Wray proposes to simply consolidate the central bank and the treasury, calling the conglomerate the State, and combine treasury and central bank liabilities into a high-powered money or fiat money. This is precisely the crucial point that we have chosen to question here with reference to bookkeeping and central bank practices. In many countries law from directly financing state deficits has prohibited the central bank. Treasuries have to sell bonds to commercial banks, which in their turn may sell them to the central bank to obtain high-powered money.

The Political Economy of Interest-Rate Setting, Inflation, and Income Distribution

Despite the seemingly apparent convergence over the endogeneity of money in recent years with the rise of New Consensus models, there is still considerable disagreement over the nature and role of interest rates in monetary theory and policy, both within the mainstream as well as among heterodox approaches. Conventional theory suggests that the rate of interest is the price of money, which equilibrates the demand for and supply of money. In this context, the analysis of money is similar to that of any other good, where any excess supplies or demands lead to either a decrease or an increase in the price. Indeed, the purported role of the rate of interest is to clear the money market and, in so doing, contribute to the regulation of economic activity. Yet, the theory of endogenous money necessarily challenges this vision. By stipulating that the supply of money adapts to the demand for credit, there is no longer an equilibrating role for the rate of interest: Because supply adapts to demand, there cannot be

Central Banking and Post-Keynesian Economics

Abstract The Post-Keynesian theory of endogenous money has given much attention to the role of the central bank in the money creation process. Circuit theory has neglected this role, in so far as it has focused on the relationship between banks and firms within a monetary production economy. The aim of this paper is therefore twofold. First, it intends to fill this gap in circuit theory, by providing a role for the central bank in settlement of interbank debts. Secondly, it aims at reinforcing the Post-Keynesian analysis of central bank money by considering both the money-purveying and the credit-purveying roles of the settlement institution in the interbank market. The result of this analysis is a more comprehensive theory of endogenous money, where the lender-of-last-resort facilities of a central bank are viewed as an endogenous phenomenon involving both a money creation and a credit operation between the central bank and the domestic banking system. In such a framework, monetary policy consists of setting the base rate of interest at a level that enables banks to limit their bilateral debt position in the interbank market, so as not to disrupt the workings of the payment system by either an illiquidity or an insolvency crisis.

Financing economic development in Latin America: the Banco del Sur

In this paper, the authors lay out a proposal for the institutional framework for the Banco del Sur. Considering the recent historical experiences of Latin America and the need to promote economic activity based in domestic currencies and channeled through nationally owned banks, the authors suggest that the Banco del Sur be divided into two parts—a regional development bank and a regional central bank that issues a regional currency. Under such a scheme, the region would benefit from greater financial stability while member countries would be afforded the maximum economic sovereignty possible.

A Kaleckian model of growth and distribution with conflict-inflation and Post Keynesian nominal interest rate rules

Post Keynesians advocate two distinct approaches to monetary and interest rate policy. The activist approach sees interest rates moved countercyclically to ensure strong growth and low employment. The parking-it approach, however, favors setting real or nominal rates at specific levels and changing them only sparingly. In this paper, the authors evaluate the impact on macroeconomic performance of three variants of this latter approach—the Smithin rule, the Kansas City rule, and the Pasinetti rule.

Post-Keynesian Interest Rate Rules and Macroeconomic Performance: A Comparative Evaluation

Post Keynesians advocate two distinct approaches to monetary and interest rate policy. The activist approach sees interest rates moved counter cyclically to ensure strong growth and low employment. The parking-it approach, however, favors setting real or nominal rates at specific levels and changing them only sparingly. In this paper, the authors evaluate the impact on macroeconomic performance of three variants of this latter approach – the Smithin Rule, the Kansas City Rule and the Pasinetti Rule. J.E.L. Classification Codes: E43, E52, E61, E12

Circuit with Multi-period Credit

We develop a circuit model in which firms finance part of their investment using bank credit issued and reimbursed over several periods. The model has three main properties: profits originate in the overlap of investments financed by bank credit that remain to be repaid; Says Law is not verified, even when households do not save within a period; and the rate of investment must increase and then level off over time to avoid an overproduction crisis.