A Keynesian Dynamic Stochastic Labor-Market Disequilibrium model for business cycle analysis

A Dynamic Stochastic Labor-Market Disequilibrium (DSLMD) model is proposed for Keynesian business cycle analysis. It shares the type of micro-foundation known from neoclassical Dynamic Stochastic General Equilibrium (DSGE) models but characterizes economic mechanisms consistent with Traditional Post-Keynesian (TPK) models. Wage inflation is perceived as a non-market-clearing policy variable which may be subject to a collective Nash bargaining process with the state of the labor market affecting the relative bargaining power. The core insights are twofold: First, apart from assumptions regarding expectation formation, the DSGE-type of micro-foundation is, to a considerable extent, consistent with the behavioral hypotheses underlying TPK models. Second, the economy characterized by the DSLMD model is post-Keynesian rather than neoclassical.Wir präsentieren ein dynamisches, stochastisches Arbeitsmarktungleichgewichtsmodel (DSLMD), welches sich für eine keynesianische Analyse des Konjunkturzyklus eignet. Mit neoklassischen dynamischen, stochastischen allgemeinen Gleichgewichtsmodellen (DSGE) verbindet es die Art der Mikrofundierung. Dennoch beschreibt es ökonomische Mechanismen, die mit traditionellen postkeynesianischen (TPK) Modellen konsistent sind. Die Lohninflation wird nicht als den Arbeitsmarkt räumende Gleichgewichtsvariable aufgefasst, sondern als Politikvariable, die entweder konstant ist oder durch einen kollektiven Nash-Lohnverhandlungsprozess bestimmt wird. Dabei beeinflusst die Arbeitslosigkeit die relative Macht der Verhandlungsparteien. Zwei Ergebnisse sind zentral: Erstens, mit Ausnahme der Annahme rationaler Erwartungen ist die Mikrofundierung basierend auf intertemporaler Optimierung größtenteils konsistent mit den Verhaltenshypothesen, die TPK Modellen zu Grunde liegen. Zweitens, die von dem DSLMD Modell beschriebene Ökonomie ist postkeynesianisch und nicht neoklassisch

Credit vs. demand constraints: the determinants of US firm-level investment over the business cycles from 1977 to 2011

The paper studies empirically how relative supply and demand conditions on the capital market affected US firm-level investment over the business cycles from 1977 to 2011. A dynamic econometric specification of capital accumulation including sales growth, Tobin's q, the cash flow-capital ratio and the cost of capital as covariates is fitted by a rolling window System GMM estimator using quarterly data on publicly traded US corporations in order to obtain time-varying coefficients. We find that the investment effects of the variables capturing the demand-side of the capital market, i.e. sales growth and Tobin's q, behave counter-cyclically, whereas this does not hold for the investment effects of supply-side variables such as cash flow or the cost of capital. Our results suggest that investment was typically driven by adverse demand rather than supply conditions on the capital market during the most severe recessions

Endogenous capital productivity in the Kaleckian growth model. Theory and Evidence

An endogenous, pro-cyclical capital productivity is motivated by optimizing firm behavior and estimated for a panel of US industries. A positive and significant adjustment parameter has been found relating the growth rate of capital productivity to the difference between the realized utilization rate and the target rate. The endogenous capital productivity is then introduced to a simple Kaleckian growth model with constant rate of utilization in the long run. The effects of shocks to investment, consumption and distribution are studied. We show that the paradox of thrift and the paradox of cost may only hold if Harrodian instability is introduced accompanied by stabilizing counter-forces such as debt dynamics

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 rate; distribution; demand; capital accumulation; Kaleckian model

Estimating Keynesian models of business fluctuations using Bayesian Maximum Likelihood

An empirical approach to model estimation and evaluation based on Bayesian Maximum Likelihood is introduced to the post-Keynesian literature. To illustrate the method, it is applied to a neo-Kaleckian type of model of Euro Area business cycle fluctuations including endogenous fiscal and monetary policy as well as endogenous wage formation. To evaluate its empirical performance, the marginal likelihood and impulse-responses conditional on the proposed model are contrasted to those conditional on the corresponding Bayesian vector auto-regression models after relaxing the theory-implied cross-coefficient restrictions. The estimated parameter distributions are broadly in line with the empirical literature. Yet, a Bayesian vector auto-regression with loose theory-implied restrictions on the prior outperforms the neo-Kaleckian model considerably indicating misspecification. Further, a baseline Dynamic Stochastic General Equilibrium model is superior in terms of the marginal likelihood. Comparative impulse-response analysis indicates a failure of the neo-Kaleckian model to satisfyingly capture the fiscal and monetary policy transmission mechanisms.Ein bayesianischer Maximum-Likelihood-Ansatz zur Modellschätzung und -evaluierung wird in die postkeynesianische Literatur eingeführt. Um die Methode zu illustrieren, wird sie an einem neokaleckianischen Konjunkturzyklusmodell für die Eurozone inklusive Fiskalpolitik, Geldpolitik sowie einer endogenen Lohnbestimmung angewandt. Um die empirische Leistungsfähigkeit des Modells zu evaluieren, werden die marginale Verteilung und Impuls-Reaktionen bedingt auf das vorgeschlagene Model jenen gegenübergestellt, die auf die entsprechenden bayesianischen Vektor-Autoregressionen nach Lockerung der theorie-induzierten Parameterrestriktionen bedingt sind. Die geschätzten Parameterverteilungen stehen weitgehend im Einklang mit der empirischen Literatur. Dennoch übertreffen die bayesianischen Vektor-Autoregressionen mit nur losen theorie-induzierten Parameterrestriktionen der a-priori Wahrscheinlichkeiten das neokaleckianische Model erheblich, was eine Fehlspezifikation des letzteren anzeigt. Darüber hinaus ist ein einfaches Allgemeines Gleichgewichtsmodell überlegen, gemessen an der marginalen Verteilung. Eine vergleichende Analyse der Impuls-Reaktionen suggeriert, dass ein großer Teil der Fehlspezifikation des neokaleckianischen Modells darin begründet liegt, dass es die fiskal- und geldpolitischen Transmissionsmechanismen nicht zufriedenstellend erfassen kann

Effective demand, exogenous normal utilization and endogenous capacity in the long run. Evidence from a CVAR analysis for the US

Using the Cointegrated VAR framework, we provide evidence for the US manufacturing sector that the principle of effective demand in a growth context, by which a permanent demand shock has a permanent growth effect, is consistent with the stylized fact of a stationary rate of capacity utilization, since production capacities adjust endogenously to current output

Effective Demand, Exogenous Normal Utilization and Endogenous Capacity in the Long Run. Evidence from a CVAR Analysis

The views expressed herein are those of the author(s) and do not necessarily reflect the views of the Ne

Are the current account imbalances between EMU countries sustainable?

Using parametric and non-parametric estimation techniques, we analyze the sustainability of the recently growing current account imbalances in the euro area and test whether the European Monetary Union has aggravated these imbalances. Two alternative criteria for the as-sessment of external debt sustainability are considered: One based on the Transversality Condition of intertemporal optimization, and the other based on the stationarity properties of the stochastic process of the debt-GDP ratio. Econometric sustainability tests are performed using the pooled mean-group estimator and panel unit root tests, respectively. Variants of both test procedures with varying coefficients using penalized splines estimation are applied. We find empirical evidence suggesting that the introduction of the euro is associated with a regime shift from sustainability to unsustainability of external debt accumulation for the euro area

"Twin deficits" in Greece: In search of causality

The paper discusses the trajectories of the Greek public deficit andsovereign debt between 1980 and 2010 and its connection to thepolitical and economic environment of the same period. We payspecial attention to the causality between the public and the externaldeficit in the period after 1995, the post-Maastricht treaty period.We argue that, due to the European monetary unification processand the adoption of the common currency, causality ran fromthe external deficit to the public deficit. This hypothesis is testedeconometrically using both Granger Causality and Cointegrationanalyses. We find empirical support for this hypothesis.Wir diskutieren die Entwicklung des öffentlichen Defizits und der Staatsverschuldung in Griechenland zwischen 1980 und 2010 vor dem Hintergrund der politischen und wirtschaftlichen Rahmenbedingungen dieser Zeit. Wir legen besonderes Augenmerk auf die Kausalität zwischen den Defiziten im öffentlichen und im Außensektor ab 1995, die Zeit nach dem Vertrag von Maastricht. Wir argumentieren, dass die Einführung einer gemeinsamen Währung zu einem strukturellen Leistungsbilanzdefizit geführt hat. Demzufolge implizierte das Defizit im Außensektor auch ein Defizit im öffentlichen Sektor auf Grund der Saldenmechanik. Wir testen diese Hypothese ökonometrisch mithilfe von Granger-Causality Tests und Kointegrationsanalyse. Die Ergebnisse bestätigen unsere Hypothese