Public debt and full employment in a stock-flow consistent model of a corporate economy

Ryoo, Soon; Skøtt, Peter

doi:10.2753/pke0160-3477350401

Cited by 39 publications

(39 citation statements)

References 20 publications

(29 reference statements)

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“…These results are confirmed by Godley and Lavoie (2007) and Ryoo and Skott (2013) in the context of full-fledged SFC models. In particular, Godley and Lavoie (2007) claim that the stability of the debt-to-GDP ratio can be preserved, even in the presence of interest rates higher than the GDP growth rates, without necessarily running a public budget surplus.…”

supporting

confidence: 73%

“…A higher public debt and large interest payments to public bonds' holders may thus give rise to expansionary outcomes by simply stimulating private sector consumptions through income and wealth effects. These effects are fully accounted for by stock-flow-consistent (SFC) models such as those proposed by Godley and Lavoie (2007) and Ryoo and Skott (2013). monetary policy may take in the presence of fiscal retrenchments. Although more circumstantiated and specific, the critiques these contributions offer to the logic of the EAT are not fully convincing.…”

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confidence: 99%

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The short- and long-run inconsistency of the expansionary austerity theory: a post-Keynesian/evolutionist critique

Botta

2018

J Evol Econ

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This work provides a critical analysis of the expansionary austerity theory (EAT). The focus is on the theoretical weaknesses of the EAT-the extreme circumstances and fragile assumptions under which expansionary consolidations might take place. The paper presents a simple theoretical model based on both the post-Keynesian and the evolutionary/institutionalist schools. First, it shows that well-designed austerity measures hardly trigger short-run economic expansions in the context of expected longlasting consolidation plans dealing with remarkably high debt-to-GDP ratios, when the so-called "financial channel" is not operative (i.e. in the context of monetarily sovereign economies), or when the degree of export responsiveness to internal devaluation is low. Even in the context of non-monetarily sovereign countries (e.g. members of the eurozone), austerity's effectiveness crucially depends on its highly disputable capacity to stabilize immediately fiscal variables. The paper then analyzes some possible long-run economic dynamics. Path dependency and cumulativeness make the short-run effects of fiscal consolidation elements of paramount importance to (hopefully) obtaining any medium-to-long-run benefit. Should these effects be even slightly contractionary, short-run costs can breed an endless spiral of recession and ballooning debt in the long run. If so, in the case of non-monetarily sovereign countries debt forgiveness may emerge as the ultimate solution to restore economic soundness. Alternatively, institutional innovations such as those adopted since mid-2012 by the European Central Bank are required to stabilize the economy, even though they are unlikely to restore rapid growth in the absence of more active fiscal stimuli.

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confidence: 73%

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confidence: 99%

The short- and long-run inconsistency of the expansionary austerity theory: a post-Keynesian/evolutionist critique

Botta

2018

J Evol Econ

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“…In combining fiscal policy, bank and chartal monies, general inflation and deflation, endogenous technological change, greenhouse gas accumulation, and our model of financial crises, the model's most similar competitors in the modern literature cited here and below might include, for example, Asada, Chiarella, Flaschel, Mouakil, Proaño, and Semmler (2010); Datta (2014); Godley and Lavoie (2012, 378-444); Hein (2012); Isaac and Kim (2013); Keen (2000Keen ( , 2013; Le Heron (2011); Palacio-Vera (2012); and Ryoo and Skott (2013). Although we can hardly claim that our effort stands on a par with these works, none combines all of the assumptions that form the basis for this model.…”

Section: )mentioning

confidence: 99%

“…In the Minsky Model in Keen (2013Keen ( , 2014, private debt hurts growth for the sole reason that high debt burdens add to firms' costs, reducing the profit rate, which determines net investment. Another continuous, deterministic approach to modeling the financial fragility hypothesis is to simply augment the investment function with a financial conditions variable, a tack that is taken in Asada (2006), Charles (2008), Datta (2012), Fazzari et al (2001Fazzari et al ( , 2008, Fisher and López (2014), Gallegati and Gardini (1991), Palley (2010), Patriarca and Sardoni (2011), Ryoo (2013), Schoder (2014) and many others. Kapeller and Schütz (2014) features constraints on consumer loans that change over time with financial conditions.…”

Section: )mentioning

confidence: 99%

Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility

Hannsgen

Young-Taft

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu The idea of including a model of greenhouse gas accumulation in the model developed in this paper was inspired by the presentations at a conference at SCEPA, The New School for Social Research, New York City, which was attended by several Levy Institute scholars. This conference took place on April 25 and 26, 2014. We thank the organizers of that conference. † hannsgen@levy.org ‡ tyoungtaft@simons-rock.edu If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicatedThe Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. 1 AbstractWe hope to model financial fragility and money in a way that captures much of what is crucial in Hyman Minsky's financial fragility hypothesis. This approach to modeling Minsky may be unique in the formal Minskyan literature. Namely, we adopt a model in which a psychological variable we call financial prudence (P) declines over time following a financial crash, driving a cyclical buildup of leverage in household balance sheets. High leverage or a low safe-asset ratio in turn induces high financial fragility (FF). In turn, the pathways of FF and capacity utilization (u) determine the probabilistic risk of a crash in any time interval. When they occur, these crashes entail discrete downward jumps in stock prices and financial sector assets and liabilities.To the endogenous government liabilities in Hannsgen (2014), we add common stock and bank loans and deposits. In two alternative versions of the wage-price module in the model (wagePhillips curve and chartalist, respectively), the rate of wage inflation depends on either unemployment or the wage-setting policies of the government sector. At any given time t, goods prices also depend on endogenous markup and labor productivity variables. Goods inflation affects aggregate demand through its impact on the value of assets and debts. Bank rates depend...

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“…But this type of approach would make more sense than imposing some arbitrary rule, such as balance the budget over the cycle. It also recognizes that there are likely to be significant differences between countries reflecting differences in investment behaviour, export opportunities etc.. Ryoo and Skott (2011) conduct an analysis in the context of a stock-flow consistent model. They conclude that "Fiscal deficits and a rise in public debt are necessary if the government wants to maintain full employment following a decline in demand.…”

Section: With Investment Taken As Exogenous At I* G Is (Non-interestmentioning

confidence: 99%

On the Sustainability of Budget Deficits and Public Debts with Reference to the UK

Arestis¹,

Sawyer²

Fiscal and Debt Policies for the Future

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Universities of Leeds AbstractThe purpose of this contribution is to look into the fiscal and debt policies in the UK and also discuss the future prospects of them. In doing so we begin with a discussion of the sustainability of deficits and debt, along with what precisely sustainability is, followed by a focused discussion of issues that relate to debt and growth, which in its turn requires a comprehensive analysis of the inter-temporal budget constraint thesis. Two further, relevant and important issues are subsequently addressed. These are, first, the relationship between the inter-temporal budget constraint thesis and sustainability, and, second, its consistency with household behaviour. The sustainability of deficits and 'functional finance', structural budgets and the impossibility of balanced structural budget are then discussed. Finally, the future of UK fiscal policy is addressed before we summarise and conclude.

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Public debt and full employment in a stock-flow consistent model of a corporate economy

Cited by 39 publications

References 20 publications

The short- and long-run inconsistency of the expansionary austerity theory: a post-Keynesian/evolutionist critique

The short- and long-run inconsistency of the expansionary austerity theory: a post-Keynesian/evolutionist critique

Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility

On the Sustainability of Budget Deficits and Public Debts with Reference to the UK

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