Marc Lavoie

Kaleckian Models of Growth in a Coherent Stock–Flow Monetary Framework: A Kaldorian View

Abstract: This paper presents a demand-led growth model grounded in a coherent stock-flow monetary accounting framework, where all stocks and flows are accounted for. Wealth is allocated between assets on Tobinesque principles, but no equilibrium condition is necessary to bring the “demand” for money into equivalence with its “supply.” Growth and profit rates, as well as valuation, debt, and capacity utilization ratios are analyzed using simulations in which a growing economy is assumed to be shocked by changes in interest rates, liquidity preference, real wages, and the parameters that determine how firms finance investment.

A Post-Keynesian Amendment to the New Consensus on Monetary Policy

A common view is now pervasive in policy research at universities and central banks, which one could call the New Keynesian consensus, based on an endogenous money supply. This new consensus reproduces received wisdom: in the long run, expansionary fiscal policy leads to higher inflation rates and real interest rates, while more restrictive monetary policy only leads to lower inflation rates. The paper provides a simple four-quadrant apparatus to represent the above, and it shows that simple modifications to the new consensus model are enough to radically modify received doctrine as to the likely effects of fiscal and monetary policies.

Traverse, Hysteresis, and Normal Rates of Capacity Utilization in Kaleckian Models of Growth and Distribution

The paper deals with the main objection addressed against the Kaleckian model of growth and distribution, i.e., the endogenous rate of utilization need not be equal to its normal rate in the long run. Various mechanisms are introduced to bring the Kaleckian model to a fully adjusted position, where the realized and normal rates of capacity utilization are equated. When hysteresis effects are considered, Kaleckian results may be sustained even in fully adjusted long-run positions.

Wage-led growth : concepts, theories and policies

The subprime financial crisis that started in 2007 and which became the global financial crisis challenges economists and policy-makers to reconsider the theories and policies that had gradually been accepted as conventional wisdom over the last thirty years. It is widely recognized that the global financial crisis has called into question the efficiency and stability of unregulated financial markets. This chapter argues that it has also demonstrated the limitations and even falsehood of the claim that wage moderation, accompanied by more flexible labour markets as well as labour institutions and laws more favourable to employers, will ultimately make for a more stable economy and a more productive and dynamic economic system.

Fiscal Policy in a Stock-Flow Consistent (SFC) Model

This paper deploys a simple stock-flow consistent (SFC) model in order to examine various contentions regarding fiscal and monetary policy. It follows from the model that if the fiscal stance is not set in the appropriate fashion—that is, at a well-defined level and growth rate—then full employment and low inflation will not be achieved in a sustainable way. We also show that fiscal policy on its own could achieve both full employment and a target rate of inflation. Finally, we arrive at two unconventional conclusions: (1) that an economy (described within an SFC framework) with a real rate of interest net of taxes that exceeds the real growth rate will not generate explosive interest flows, even when the government is not targeting primary surpluses, and (2) that it cannot be assumed that a debtor country requires a trade surplus if interest payments on debt are not to explode.

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.

The New Consensus on Monetary Policy and its Post-Keynesian Critique

Abstract This paper seeks to look at the underlying framework of the New Consensus models, providing a Post-Keynesian critique. In the light of this critique, the model is reformulated, with its basic structure intact, but with alternative post-Keynesian specifications of the Phillips curve being considered. It is shown that such modifications, either allow a long run trade-off between the rate of inflation and the level of output, the rate of capacity utilization and, therefore, unemployment, or, in our preferred specification, changes in output and capacity have no implications for inflation over a large range of capacity utilization.

Similitudes and Discrepancies in Post-Keynesian and Marxist Theories of Investment: A Theoretical and Empirical Investigation

There has been a substantial amount of convergence between post‐Keynesian and Marxist economics, the writings of Kalecki being common ground for both traditions. Still, some differences remain. While authors in both traditions seem to agree to a large extent on short‐period issues, long‐period matters relating to the role of saving, the rate of profit, inflation, crowding out, excess money supply, are still contentious. All this seems to depend on the exact form taken by the investment function, more specifically the role of capacity utilization. Four different equations are set up to be tested, two of which correspond to two variants of the Marxist view, while the other two equations correspond to a naive and a sophisticated Kaleckian view, the latter being based on hysteresis. The equations are tested on three sets of annual Canadian data. Various statistical tests are applied to all four equations in an effort to rank them, notably information and encompassing tests. The Kaleckian equation with hysteresis generally comes out empirically with the preferred statistical properties, when manufacturing data on actual rates of capital accumulation are considered separately or when both realized and intended rates of investment for the total industrial sector are used.

Credit and Money: The Dynamic Circuit, Overdraft Economics, and Post-Keynesian Economics

There are two dangers when starting to study money matters. One is to follow Keynes too closely, in particular his writings in the General Theory (1936). The other danger is to look to the writings of Nobel laureates on monetary issues. To acquire a clear and proper understanding of the true functioning of production money economies, one should keep clear of these authors.

Minsky's Financial Fragility Hypothesis: a Missing Macroeconomic Link?

Hyman Minsky is renowned for his theoretical and empirical investigation of the capitalist economy. In this book, a distinguished group of contributors provides an authoritative account of his contribution to the analysis of capitalism and, more particularly, to the fields of monetary and post Keynesian economics.