A. Shaikh, José Alejandro Coronado, Luiza Nassif-Pires
This paper focuses on a key concern of the Cambridge capital controversies: Sraffa's theoretical demonstration that competitive relative prices, and hence the money value of aggregate capital, can vary in complex ways as the wage share (profit rate) changes. We find that, on the contrary, individual prices are usually linear or mildly curved. We develop a formal measure of curvature, and find that average price curvature does not fall with matrix size as proposed in Brody's random matrix hypothesis. Since the average curves are near-linear, it follows that aggregates such as capital, wages, and net output will exhibit the same behavior. We believe this explains the widely observed near-linearity of the wage–profit curve.
{"title":"On the empirical regularities of Sraffa prices","authors":"A. Shaikh, José Alejandro Coronado, Luiza Nassif-Pires","doi":"10.4337/ejeep.2020.0069","DOIUrl":"https://doi.org/10.4337/ejeep.2020.0069","url":null,"abstract":"This paper focuses on a key concern of the Cambridge capital controversies: Sraffa's theoretical demonstration that competitive relative prices, and hence the money value of aggregate capital, can vary in complex ways as the wage share (profit rate) changes. We find that, on the contrary, individual prices are usually linear or mildly curved. We develop a formal measure of curvature, and find that average price curvature does not fall with matrix size as proposed in Brody's random matrix hypothesis. Since the average curves are near-linear, it follows that aggregates such as capital, wages, and net output will exhibit the same behavior. We believe this explains the widely observed near-linearity of the wage–profit curve.","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78047489","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-09-01DOI: 10.4337/ejeep.2020.02.10
C. C. Weizsäcker
The paper offers a modernized BA¶hm-Bawerkian approach to capital theory. The Wicksell effect turns out to be a measure for the degree of vertical distribution of labor. I show that a marginal rise in the rate of interest reduces the (modernized) period of production. A ‘generalized golden rule of accumulation’ is one result of our approach. Based on these results I define a coefficient of intertemporal substitution (CIS). As opposed to the traditional elasticity of substitution between labor and capital, the CIS is also well defined for negative real rates of interest. This is important in the twenty-first century, since we observe a strong overhang of private savings over private investments (secular stagnation).
{"title":"Böhm-Bawerk and Hicks modernized","authors":"C. C. Weizsäcker","doi":"10.4337/ejeep.2020.02.10","DOIUrl":"https://doi.org/10.4337/ejeep.2020.02.10","url":null,"abstract":"The paper offers a modernized BA¶hm-Bawerkian approach to capital theory. The Wicksell effect turns out to be a measure for the degree of vertical distribution of labor. I show that a marginal rise in the rate of interest reduces the (modernized) period of production. A ‘generalized golden rule of accumulation’ is one result of our approach. Based on these results I define a coefficient of intertemporal substitution (CIS). As opposed to the traditional elasticity of substitution between labor and capital, the CIS is also well defined for negative real rates of interest. This is important in the twenty-first century, since we observe a strong overhang of private savings over private investments (secular stagnation).","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85923253","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-09-01DOI: 10.4337/ejeep.2020.02.05
G. Zezza
We argue that the institutional framework of the eurozone was designed to deny a role for fiscal policy. However, the Great Recession of 2008–2009 forced governments to intervene, mainly to avoid the collapse of their financial systems. At the same time, the severe recession implied a decrease in tax revenues, and an increase in some components of public expenditure – such as unemployment benefits, which implied an increase in public deficits. When the crisis seemed to be over, the Maastricht rules gave priority to restoring fiscal targets, even at the cost of prolonged unemployment and stagnation in countries like Greece and Italy. Using the three-balances approach pioneered by Godley, we argue that such policies require the achievement of an external surplus, or else fiscal austerity will worsen the financial position of the private sector. We show that this is indeed how most eurozone countries moved, and argue that such policies are fragile, and possibly not sustainable in the medium term. We suggest the introduction of fiscal currencies as one way of introducing a degree of freedom in the sustainability of the eurozone.
{"title":"Fiscal policies in a monetary union: the eurozone case","authors":"G. Zezza","doi":"10.4337/ejeep.2020.02.05","DOIUrl":"https://doi.org/10.4337/ejeep.2020.02.05","url":null,"abstract":"We argue that the institutional framework of the eurozone was designed to deny a role for fiscal policy. However, the Great Recession of 2008–2009 forced governments to intervene, mainly to avoid the collapse of their financial systems. At the same time, the severe recession implied a decrease in tax revenues, and an increase in some components of public expenditure – such as unemployment benefits, which implied an increase in public deficits. When the crisis seemed to be over, the Maastricht rules gave priority to restoring fiscal targets, even at the cost of prolonged unemployment and stagnation in countries like Greece and Italy. Using the three-balances approach pioneered by Godley, we argue that such policies require the achievement of an external surplus, or else fiscal austerity will worsen the financial position of the private sector. We show that this is indeed how most eurozone countries moved, and argue that such policies are fragile, and possibly not sustainable in the medium term. We suggest the introduction of fiscal currencies as one way of introducing a degree of freedom in the sustainability of the eurozone.","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73742354","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper identifies as the root of the recent controversy in the theory of capital David Ricardo's finding that competitive prices and costs of production depend not only on the methods of production employed, but also on the wage rate (or rate of profits) and change with it. A consequence of this result, whose systematic elaboration we owe to Piero Sraffa, is that systems of production cannot generally be ordered monotonically with the rate of profits. Reswitching, capital reversing, price and quantity Wicksell effects, etc., are all rooted in this fact. It is argued that the rate of profits is not determined by the marginal productivity of capital and that the equality between the two in equilibrium must not be misinterpreted as implying a causal relationship leading from the latter to the former. Attempts to assess the empirical probability of reswitching, etc., in terms of input–output tables ought to be received with many reservations for both theoretical and data-related reasons. It is further argued that problems for marginalist theory already arise in a zero-profit framework, in which compound interest effects are ruled out. Hence the seemingly unobtrusive ‘laws’ of input demand and output supply are a much less reliable basis to stand on than is conventionally thought. The paper concludes with some remarks on the implications of the findings in the controversy for Keynes's theory of investment.
{"title":"The theory of value and distribution and the problem of capital","authors":"H. Kurz","doi":"10.4337/ejeep.2020.0067","DOIUrl":"https://doi.org/10.4337/ejeep.2020.0067","url":null,"abstract":"The paper identifies as the root of the recent controversy in the theory of capital David Ricardo's finding that competitive prices and costs of production depend not only on the methods of production employed, but also on the wage rate (or rate of profits) and change with it. A consequence of this result, whose systematic elaboration we owe to Piero Sraffa, is that systems of production cannot generally be ordered monotonically with the rate of profits. Reswitching, capital reversing, price and quantity Wicksell effects, etc., are all rooted in this fact. It is argued that the rate of profits is not determined by the marginal productivity of capital and that the equality between the two in equilibrium must not be misinterpreted as implying a causal relationship leading from the latter to the former. Attempts to assess the empirical probability of reswitching, etc., in terms of input–output tables ought to be received with many reservations for both theoretical and data-related reasons. It is further argued that problems for marginalist theory already arise in a zero-profit framework, in which compound interest effects are ruled out. Hence the seemingly unobtrusive ‘laws’ of input demand and output supply are a much less reliable basis to stand on than is conventionally thought. The paper concludes with some remarks on the implications of the findings in the controversy for Keynes's theory of investment.","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85020508","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-09-01DOI: 10.4337/ejeep.2020.02.07
Vítor Constâncio
The euro is irreversible but it needs reform to address well-known design deficiencies and also new challenges. Although progress has been made, further steps are needed, the most important of which are: revision of the fiscal rules, establishing a central stabilisation capacity, and completing the banking union (especially a deposit insurance, a capital market union based around a common safe asset, and improved macroprudential policy). This article sets out the necessary reforms in these areas in detail.
{"title":"Fiscal and financial conditions for a stronger euro area","authors":"Vítor Constâncio","doi":"10.4337/ejeep.2020.02.07","DOIUrl":"https://doi.org/10.4337/ejeep.2020.02.07","url":null,"abstract":"The euro is irreversible but it needs reform to address well-known design deficiencies and also new challenges. Although progress has been made, further steps are needed, the most important of which are: revision of the fiscal rules, establishing a central stabilisation capacity, and completing the banking union (especially a deposit insurance, a capital market union based around a common safe asset, and improved macroprudential policy). This article sets out the necessary reforms in these areas in detail.","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81445185","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper summarises the main results of the Cambridge controversy on capital theory and discusses its actual relevance. The paradoxes that had first been regarded as most relevant (reswitching and reverse capital deepening) have turned out to be empirically rare, and this can be explained theoretically, but both neoclassical and anti-neoclassical Wicksell effects are ubiquitous. The number of efficient techniques that turn up on the envelope of the wage curves of a spectrum of techniques can be shown to be quite small both empirically and theoretically, which constitutes a new critique. It has implications for employment policies.
{"title":"What remains of the Cambridge critique of capital theory, if reswitching and reverse capital deepening are empirically rare and theoretically unlikely?","authors":"B. Schefold","doi":"10.4337/ejeep.2020.0066","DOIUrl":"https://doi.org/10.4337/ejeep.2020.0066","url":null,"abstract":"The paper summarises the main results of the Cambridge controversy on capital theory and discusses its actual relevance. The paradoxes that had first been regarded as most relevant (reswitching and reverse capital deepening) have turned out to be empirically rare, and this can be explained theoretically, but both neoclassical and anti-neoclassical Wicksell effects are ubiquitous. The number of efficient techniques that turn up on the envelope of the wage curves of a spectrum of techniques can be shown to be quite small both empirically and theoretically, which constitutes a new critique. It has implications for employment policies.","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79720170","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This contribution assesses the functioning of Europe's Economic and Monetary Union (EMU) during the first 20 years of the euro's existence. It argues that two formative intellectual currents converged at Maastricht to shape the design and reception of the euro regime: ordoliberalism and neoliberalism. Germany's ordoliberalism inspired and shaped the euro regime design. Neoliberalism fashioned the reception of what was agreed at Maastricht under the influence of Bundesbank dogma and power. As a product of the zeitgeist, Europe got stuck with a deeply flawed euro regime. The Maastricht Treaty institutionalized an asymmetric (growth-unfriendly) policy regime. This suited the macroeconomic mainstream well, fighting the ‘1970s stagflation war’ for the past 40 years. Twenty years of euro disillusion have produced the exact opposite: ‘stagdeflation.’
{"title":"Stuck on the wrong track: 20 years of euro disillusion, denial, and delusion","authors":"Joerg Bibow","doi":"10.4337/ejeep.2020.0065","DOIUrl":"https://doi.org/10.4337/ejeep.2020.0065","url":null,"abstract":"This contribution assesses the functioning of Europe's Economic and Monetary Union (EMU) during the first 20 years of the euro's existence. It argues that two formative intellectual currents converged at Maastricht to shape the design and reception of the euro regime: ordoliberalism and neoliberalism. Germany's ordoliberalism inspired and shaped the euro regime design. Neoliberalism fashioned the reception of what was agreed at Maastricht under the influence of Bundesbank dogma and power. As a product of the zeitgeist, Europe got stuck with a deeply flawed euro regime. The Maastricht Treaty institutionalized an asymmetric (growth-unfriendly) policy regime. This suited the macroeconomic mainstream well, fighting the ‘1970s stagflation war’ for the past 40 years. Twenty years of euro disillusion have produced the exact opposite: ‘stagdeflation.’","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90569522","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Profitability of technical-analysis strategies has been explained with reference to central-bank intervention in markets (Neely 1998; LeBaron 1999; Saacke 2002). I argue that central-bank intervention is a market shock which leads to a generation of trends, making technical analysis profitable. Looking at empirical evidence from the Indian foreign-exchange market, I find returns calculated for the entire period are consistently and substantially higher than when intervention periods are removed. Thirteen out of the 15 strategies demonstrate higher returns with intervention periods included, compared to without intervention periods. The Kolmogorov–Smirnov sample tests show statistically significant differences in the returns between the entire period and the without-intervention period for four strategies, which is confirmed by bootstrap estimation. The paper contributes first by including actual trading strategies in the empirical testing of profitability of technical analysis and second by emphasizing the efficacy of technical analysis rather than the action of the central bank itself in explaining profitability, in a departure from the existing literature.
{"title":"‘Manna from heaven’: does the presence of central banks make technical analysis profitable?","authors":"Smita Roy Trivedi","doi":"10.4337/EJEEP.2020.0072","DOIUrl":"https://doi.org/10.4337/EJEEP.2020.0072","url":null,"abstract":"Profitability of technical-analysis strategies has been explained with reference to central-bank intervention in markets (Neely 1998; LeBaron 1999; Saacke 2002). I argue that central-bank intervention is a market shock which leads to a generation of trends, making technical analysis profitable. Looking at empirical evidence from the Indian foreign-exchange market, I find returns calculated for the entire period are consistently and substantially higher than when intervention periods are removed. Thirteen out of the 15 strategies demonstrate higher returns with intervention periods included, compared to without intervention periods. The Kolmogorov–Smirnov sample tests show statistically significant differences in the returns between the entire period and the without-intervention period for four strategies, which is confirmed by bootstrap estimation. The paper contributes first by including actual trading strategies in the empirical testing of profitability of technical analysis and second by emphasizing the efficacy of technical analysis rather than the action of the central bank itself in explaining profitability, in a departure from the existing literature.","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86280242","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
While Basil Moore is well known for his view on endogenous money, very little is known about how he got there, and how his views might have evolved through time. This paper examines Moore's early views, pre-Horizontalists and Verticalists, and explains how Moore's views are rooted in a traditional Keynesian Tobin approach. But Moore's sabbatical at the University of Cambridge in 1970, when he met Paul Davidson and Joan Robinson, changed all that. Yet it would take him a full decade to fully embrace endogenous money.
{"title":"The economics of Basil Moore: slow progress toward horizontalism","authors":"Louis-Philippe Rochon","doi":"10.4337/ejeep.2020.0062","DOIUrl":"https://doi.org/10.4337/ejeep.2020.0062","url":null,"abstract":"While Basil Moore is well known for his view on endogenous money, very little is known about how he got there, and how his views might have evolved through time. This paper examines Moore's early views, pre-Horizontalists and Verticalists, and explains how Moore's views are rooted in a traditional Keynesian Tobin approach. But Moore's sabbatical at the University of Cambridge in 1970, when he met Paul Davidson and Joan Robinson, changed all that. Yet it would take him a full decade to fully embrace endogenous money.","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73659677","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the effects of fiscal rules on public investment. Economists argue that fiscal rules decrease public investment, as it is easier for governments to lower public investment than current expenditures. This paper presents an empirical assessment of the relationship between fiscal rules and public investment using European panel data covering the 1997–2016 period. In contrast to previous work, we focus on national fiscal rules and use the European Commission's Fiscal Rules Strength Index to measure the constraints imposed on public finances. This index captures 230 national fiscal rules and reflects the annual strength of fiscal rules in each European Union member state. In line with our expectations, we find that fiscal rules decrease public investment. We run some additional models in which the results are mixed.
{"title":"Do fiscal rules decrease public investment? Evidence from European panel data","authors":"S. Wijsman, C. Crombez","doi":"10.4337/ejeep.2020.0070","DOIUrl":"https://doi.org/10.4337/ejeep.2020.0070","url":null,"abstract":"This paper studies the effects of fiscal rules on public investment. Economists argue that fiscal rules decrease public investment, as it is easier for governments to lower public investment than current expenditures. This paper presents an empirical assessment of the relationship between fiscal rules and public investment using European panel data covering the 1997–2016 period. In contrast to previous work, we focus on national fiscal rules and use the European Commission's Fiscal Rules Strength Index to measure the constraints imposed on public finances. This index captures 230 national fiscal rules and reflects the annual strength of fiscal rules in each European Union member state. In line with our expectations, we find that fiscal rules decrease public investment. We run some additional models in which the results are mixed.","PeriodicalId":44368,"journal":{"name":"European Journal of Economics and Economic Policies-Intervention","volume":null,"pages":null},"PeriodicalIF":0.6,"publicationDate":"2020-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84543058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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