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Before the crisis…
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tarix | 12.08.2018 | ölçüsü | 1,11 Mb. | | #62419 |
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Before the crisis… Before the crisis… - The state of macro is good…” (Oliver Blanchard: founding editor, AER: Macro)
After the crisis… - It is important to start by stating the obvious, namely, that the baby should not be thrown out with the bathwater…” (Blanchard Dell'Ariccia et al. 2010; emphasis added)
Reality - Neoclassical macroeconomics is a baby that should never have been conceived
Neoclassical theory wrong from first principles: Neoclassical theory wrong from first principles: - Treats complex monetary exchange as barter
- Assumes macroeconomy is stable
- Ignores social class
- Treats entire economy a single agent
- Obliterates uncertainty
- “Rational” as capacity to foresee the future;
- Uses empirically falsified “money multiplier” model of money creation; and
- Ignores credit and debt.
A new macroeconomics must do the exact opposite: A new macroeconomics must do the exact opposite: - Economy as inherently monetary;
- Model the economy dynamically;
- Social classes rather than isolated agents;
- Rational but not prophetic behavior;
- Endogenous creation of money by banking sector; and
- Credit and Debt have pivotal roles
Two instances - Monetary Minsky Great Moderation/Recession model
- Dynamic Monetary Multisectoral model
Base models: - Monetary Circuit Theory (Graziani 1989; Keen 2008)
- Goodwin Growth Cycle (Goodwin 1967)
Basic process of endogenous money creation Basic process of endogenous money creation Entrepreneur approaches bank for loan
Input financial relations in matrix: Input financial relations in matrix:
Symbolic substitutions generate model Symbolic substitutions generate model
Inherently cyclical growth (Goodwin 1967, Blatt 1983) Inherently cyclical growth (Goodwin 1967, Blatt 1983)
Coupled with Goodwin model to yield final system
Single sector model (not yet calibrated to data) can generate “Great Moderation and Great Recession” Single sector model (not yet calibrated to data) can generate “Great Moderation and Great Recession”
Stylized version of monetary flows table: Stylized version of monetary flows table:
Profit now net of intersectoral input purchases: Profit now net of intersectoral input purchases:
“Conjecture: The repeated development of an unstable state of the economy is … an unavoidable consequence of, the local instability of the state of balanced growth.” (Blatt 1983, p. 161) “Conjecture: The repeated development of an unstable state of the economy is … an unavoidable consequence of, the local instability of the state of balanced growth.” (Blatt 1983, p. 161)
“The usual image of the business cycle was of a wavelike movement, and the waves of the sea were the accepted metaphor… The reality in the nineteenth and early twentieth centuries was, in fact, much closer to the teeth of a ripsaw which go up on a gradual plane on one side and drop precipitately on the other…” (Galbraith 1975, p. 104) “The usual image of the business cycle was of a wavelike movement, and the waves of the sea were the accepted metaphor… The reality in the nineteenth and early twentieth centuries was, in fact, much closer to the teeth of a ripsaw which go up on a gradual plane on one side and drop precipitately on the other…” (Galbraith 1975, p. 104)
Model fundamentally monetary: physical cycles cause and caused by cycles in finance Model fundamentally monetary: physical cycles cause and caused by cycles in finance
Making real dynamics sexy & accessible Making real dynamics sexy & accessible Free prototype QED “Quesnay Economic Dynamics” Inspired by Godley SAM approach - Extended to continuous time
Ideally suited to financial flows
Freely available at www.debtdeflation.com/blogs/qed Freely available at www.debtdeflation.com/blogs/qed
According to … modern followers [of past economists], static economics is a direct stepping stone to the dynamic system… According to … modern followers [of past economists], static economics is a direct stepping stone to the dynamic system… According to other economists, the body of economic theory must be cardinally rebuilt, if dynamic problems are to be discussed efficiently… … as long as static economics will remain a strictly unified system based upon the concept of equilibrium, … its analytic part will remain of little use to any system of dynamic economics… the static scheme in its entirety, in the essence of its approach, is neither a basis, nor a stepping stone towards a proper discussion of dynamic problems. Kuznets, S. (1930, pp. 422-428, 435-436; emphasis added)
Bezemer, D. J. (2009). ““No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models.” Groningen, The Netherlands, Faculty of Economics University of Groningen. Bezemer, D. J. (2009). ““No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models.” Groningen, The Netherlands, Faculty of Economics University of Groningen. Blatt, J. M. (1983). Dynamic economic systems : a post-Keynesian approach. Armonk, N.Y, M.E. Sharpe. Bezemer, D. J. (2010). "Understanding financial crisis through accounting models." Accounting, Organizations and Society 35(7): 676-688. Biggs, M., T. Mayer, et al. (2010). "Credit and Economic Recovery: Demystifying Phoenix Miracles." SSRN eLibrary. Blanchard, O., G. Dell'Ariccia, et al. (2010). "Rethinking Macroeconomic Policy." Journal of Money, Credit, and Banking 42: 199-215. Goodwin, R. (1967). A growth cycle. Socialism, Capitalism and Economic Growth. C. H. Feinstein. Cambridge, Cambridge University Press: 54-58. Graziani, A. (1989). "The Theory of the Monetary Circuit." Thames Papers in Political Economy Spring: 1-26. Holmes, A. R. (1969). Operational Constraints on the Stabilization of Money Supply Growth. Controlling Monetary Aggregates. F. E. Morris. Nantucket Island, The Federal Reserve Bank of Boston: 65-77.
Keen, S. (1995). "Finance and Economic Breakdown: Modeling Minsky's 'Financial Instability Hypothesis.'." Journal of Post Keynesian Economics 17(4): 607-635. Keen, S. (1995). "Finance and Economic Breakdown: Modeling Minsky's 'Financial Instability Hypothesis.'." Journal of Post Keynesian Economics 17(4): 607-635. Keen, S. (2008). Keynes’s ‘revolving fund of finance’ and transactions in the circuit. Keynes and Macroeconomics after 70 Years. R. Wray and M. Forstater. Cheltenham, Edward Elgar: 259-278. Kuznets, S. (1930). "Static and Dynamic Economics." The American Economic Review 20(3): 426-441. Kydland, F. E. and E. C. Prescott (1990). "Business Cycles: Real Facts and a Monetary Myth." Federal Reserve Bank of Minneapolis Quarterly Review 14(2): 3-18. Minsky, H. P. (1982). Can "it" happen again? : essays on instability and finance. Armonk, N.Y., M.E. Sharpe. Schumpeter, J. A. (1934). The theory of economic development : an inquiry into profits, capital, credit, interest and the business cycle. Cambridge, Massachusetts, Harvard University Press. Solow, R. M. (2001) “From Neoclassical Growth Theory to New Classical Macroeconomics”, in J. H. Drèze (ed.), Advances in Macroeconomic Theory. New York, Palgrave Solow, R. (2008). "The State of Macroeconomics." The Journal of Economic Perspectives 22(1): 243-246.
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