Malcolm Sawyer

Aggregate Demand, Conflict and Capacity in the Inflationary Process

The dominant view relating to unemployment and inflation is that inflation will be constant at a level of unemployment (the nonaccelerating inflation rate of unemployment, NAIRU) determined on the supply side of the economy (and in the labor market in particular). Further, the economy will tend to converge to (or oscillate around) that level of unemployment. Moreover, demand variables or economic policy changes are thought to have no influence whatsoever on NAIRU. An alternative perspective on inflation would indicate that there would be no automatic forces leading to a level of aggregate demand consistent with constant inflation. Inflationary pressures would arise from, inter alia, a role of conflict over income shares, and from cost elements, with the price of raw materials, especially oil, being the most important. Insofar as there are supply-side factors impinging on the inflationary process, these would arise from the level of productive capacity (relative to aggregate demand) and from conflict over income shares. This paper focuses on the arguments and the evidence that supply-side constraints should be viewed as arising from capacity constraints, rather than from the operation of the labor market.

Can Monetary Policy Affect the Real Economy

Current monetary policy involves the manipulation of the Central Bank interest rate (the repo rate), with the specific objective of achieving the goal(s) of monetary policy. The latter is normally the inflation rate, although in a number of instances this may include the level of economic activity (the U.S. Federal Reserve monetary policy is a good example of this category). This raises two issues. The first is the theoretical underpinnings of this mode of monetary policy. The second is the channels of monetary policy or, more concretely, the channels through which changes in the rate of interest may affect the ultimate goal(s) of policy. Both aspects are investigated in this paper. Furthermore, we suggest that it is imperative to consider the empirical estimates of the effects of monetary policy. We summarise results drawn from the eurozone, the U.S. and the UK and suggest that these empirical results point to a relatively weak effect of interest rate changes on inflation. We also suggest, on the basis of the evidence adduced in the paper, that monetary policy can have long-run effects on real magnitudes. This particular result does not fit comfortably with the theoretical basis of current thinking on monetary policy.

The NAIRU, Aggregate Demand and Investment

The nature of the non-accelerating inflation rate of unemployment (NAIRU) is analysed. The focus of our analysis is the role of aggregate demand and capacity in the context of the NAIRU. Two aspects of the relationship between the level of aggregate demand and the NAIRU are of particular significance. First, it is argued that the real wage-employment relationship based on enterprise decisions cannot be fully articulated without reference to the level of aggregate demand. Second, a model which allows for variable returns to labour and the notion of full capacity is used to explore the effects of shifts in the capital stock on the real wage-employment relationship. The model is specifically used to explore whether a sufficiently expansionary environment can generate sufficient investment to shift that relationship until the NAIRU is compatible with full employment. A number of limitations on the conclusions reached are considered, and the policy implications are briefly considered.

The Relationship between Capital Stock, Unemployment and Wages in Nine EMU Countries

The focus of this paper is to investigate the importance of the capital stock in the determination of wages and unemployment in a range of EMU countries and to compare the results across countries. A time-series analysis is conducted in the case of nine euro area countries, which were selected solely on the basis of data availability and consistency: Austria, Belgium, Finland, France, Germany, Italy, Ireland, the Netherlands and Spain. The paper begins with a short review of the literature on capital stock and unemployment, before it deals with the theoretical model. This is followed by estimation and testing of the theoretical model put forward, using both time-series and panel data. The results are supportive of the main hypothesis of the paper: capital stock is an important determinant of unemployment and wages in the countries considered for the purposes of the paper.

Employer of last resort: could it deliver full employment and price stability?

Proposals under the headings of employer of last resort (ELR) and job guarantee have been made under which jobs would be available to all at a basic wage. These schemes promise a combination of full employment and price stability. This paper examines whether they would be able to deliver on such a promise. The paper discusses the notion of ‘functional finance’ which forms an important element of ideas on ELR. The nature and role of money as envisaged in the tax driven money approach which is often associated with the ELR proposals is critically examined. It is argued that whilst the ELR budgetary costs may be relatively small, this would also be the case from any public sector employment program. The question is raised as to whether there would be jobs of a type which could fit in with the ELR proposals, and what the nature of these jobs might be. The paper considers the extent to which ELR would involve underemployment and unemployment by another name. The possible inflationary implications of the ELR are next considered. This has two aspects: first to consider whether inflation would result from unemployment falling below any form of supply-side inflation barrier (such as a NAIRU), and second to consider whether the use of a base wage would bring price stability as claimed. In the subsequent section, the idea that ELR employment would form a buffer stock is critically examined.

A handbook of alternative monetary economics

A handbook of alternative monetary economics , A handbook of alternative monetary economics , کتابخانه دیجیتال و فن آوری اطلاعات دانشگاه امام صادق(ع)

Inflation Targeting: A Critical Appraisal

Since the early 1990s, a number of countries have adopted Inflation Targeting (IT) in an effort to reduce inflation. Most literature has praised IT as a superior framework of monetary policy. We suggest that IT is a major policy prescription closely associated with the New Consensus Macroeconomics (NCM). Focusing mainly on the IT aspects of the NCM, we address and assess the theoretical foundations of IT, and then assess the empirical work on IT, distinguishing between work that utilizes structural macroeconomic models and work based on single-equation techniques. The IT theoretical framework and the available empirical evidence do not appear to support the views of IT proponents.

What Is Financialization

The paper seeks to distinguish between two broad perspectives on financialization. The first takes the view that financialization relates to the growth of the financial sector in its operations, power, etc. On that basis, financialization has been proceeding with ups and downs for possibly thousands of years. The specific forms financialization may have taken in the past few decades are outlined. The findings from mainstream economics literature on one aspect of financialization (growth of bank deposits, growth of stock markets) and economic growth are reviewed. The second perspective views financialization (financialized capitalism) as a stage or epoch of capitalism dating from circa 1980.

Models of Inflation in the United Kingdom: an Evaluation

In this article re-estimates are made of some of the main econometric models of inflation that have been proposed for the UK. Primarily these are wage inflation models, though reference is also made in the article to price equations. Estimates for each model are provided for a number of different post-war samples to investigate the reliability of each model and their adequacy in the light of recent high rates of inflation. The results for most of the models we consider are generally negative, except a wage inflation equation based on the hypothesis of a target rate of increase in real net earnings desired by workers which shows a great deal of consistency over the different sample periods.

The Euro crisis

Can the Euro Survive After the European Crisis? P.Arestis & M.Sawyer The European Financial and Economic Crisis: Alternative Solutions from a (Post) Keynesian Perspective E.Hein & T.van Treeck Debt Sustainability Revisited Y.Monogios & P.Korliras Greeces Sudden Faltering Economy: From Boom to Bust with Special Reference to the Debt Problem E.Desli & T.Pelagidis The Irish Tragedy Y.Kitromilides Portugals Best Way Out of Economic Stagnation: Institutional Reform of the Eurozone P.Leao & A.Palacio-Vera The Economic Crisis in Spain: Contagion Effects and Distinctive Factors J.Ferreiro & F.Serrano