Are Long-run Price Stability and Short-run Output Stabilization All that Monetary Policy can Aim for?

Fontana, Giuseppe; Palacio-Vera, Alfonso

doi:10.2139/ssrn.855064

Cited by 34 publications

(39 citation statements)

References 72 publications

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“…adjust actual unemployment to the NAIRU, Arestis/Sawyer (2004a, 2004b, 2005, Fontana/Palacio-Vera (2007), Hein (2004Hein ( , 2006aHein ( , 2007, and Palacio-Vera (2005) have argued that monetary policy interventions will not be able to constrain instability in many cases for several reasons. Finally, long-run endogeneity of the NAIRU with respect to actual unemployment, and hence to macroeconomic and monetary policies, has been related to different channels.…”

Section: Considering the Ncm Recommendation Of Inflation Targeting Momentioning

confidence: 99%

“…2 Therefore, the long-run Phillips curve becomes vertical. Monetary policy applying the interest rate tool is able to stabilise output and employment in the short run, but in the long run it is neutral and only affects inflation (Fontana/Palacio-Vera 2007). Fiscal policy is downgraded and is restricted to support monetary policies in achieving price stability (Arestis/Sawyer 2003).…”

Section: Introductionmentioning

confidence: 99%

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

Hein

Stockhammer

2010

Review of Political Economy

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-New Consensus Models (NCMs) have been criticised by Post-Keynesians (PKs) for a variety of reasons. The paper presents a model that synthesises several of the PK arguments. 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 does not only affect 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-ofUnemployment (NAIRU): persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. The model is used to analyse NCM and PK policy assignments and policy rules. 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.Keywords: Macroeconomic policy mix; employment; inflation; New Consensus; PostKeynesian alternative JEL-Classification: E12; E20; E52; E61 * For helpful comments we would like to thank Philip Arestis, Jan-Oliver Menz, and the participants in the conference 'Unemployment: Past and Present', 30 August -1 September, 2007, Downing College, Cambridge, UK. Remaining errors are, of course, ours. The major part of the paper was written while Eckhard Hein was a visiting professor at Vienna University of Economics and Business Administration (WU). AbstractNew Consensus Models (NCMs) have been criticised by Post-Keynesians (PKs) for a variety of reasons. The paper presents a model that synthesises several of the PK arguments. 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 does not only affect 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-AcceleratingInflation-Rate-of-Unemployment (NAIRU): persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. The model is used to analyse NCM and PK policy assignments and policy rules. We argue that improved employment without increasing inflation will be possible, if macroeconomic policies are coordinated along the following lines: The central bank targets di...

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Section: Considering the Ncm Recommendation Of Inflation Targeting Momentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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

Hein

Stockhammer

2010

Review of Political Economy

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“…All of these authors, and Fair's research as well, have suggested that the U.S. economy has historically operated well within this theorized horizontal range and below full utilization of capacity. Furthermore, in the simulations it need not be the case that productive capacity has not increased with sales and production; in the Fairmodel and consistent with most heterodox analyses, rising sales demand can encourage greater capital accumulation (see the discussion and literature reviews in Palacio-Vera (2005, especially 754-758) and in Fontana and Palacio-Vera (2005)). …”

Section: Macroeconomic Effects Of the Simulated Elr Programmentioning

confidence: 80%

Macroeconomic Stabilization through an Employer of Last Resort

Fullwiler¹

2007

Journal of Economic Issues

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“…Under the assumption that apparently impotent policy effect is due to the mixture of different responses of various workforce groups, workers 1. Many studies such as Erceg and Levin (2014), Fontana and Palacio-Vera (2007), Fontana (2006), Gali (2011), Reifschneider et al (2015) advocated that monetary policy should play a role in preventing employment hysteresis effect. Taylor (2011), on the contrary, blamed the Fed that '[they] used the full employment mandate to justify discretionary policy ….…”

Section: Introductionmentioning

confidence: 99%

Age and Gender Group Differences in Employment Responses to Monetary Policy Shock in a Small Open Economy: The Case of Korea

Chung

2017

Asia & the Pacific Policy Studies

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A Factor Augmented Vector Autoregressive model is constructed in a way that it resolves the price puzzle problem and separately identifies domestic and foreign monetary policy shocks by imposing a small-open economy structure. An analysis on the employment data grouped by age and gender reveals that only the young male worker group exhibits an inverse relationship between employment and domestic policy rates. In the case of the foreign (the United States) policy rate rise, however, the negative response of employment could be observed for all of the worker groups.

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Are Long-run Price Stability and Short-run Output Stabilization All that Monetary Policy can Aim for?

Cited by 34 publications

References 72 publications

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

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

Macroeconomic Stabilization through an Employer of Last Resort

Age and Gender Group Differences in Employment Responses to Monetary Policy Shock in a Small Open Economy: The Case of Korea

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