Explorations in Theory and Empirical Analysis
On occasion, scholars at the Levy Institute conduct research that does not fall within a current program or general topic area. Such study might include examination of a subject of particular policy interest, empirical research that has grown out of work in a current program area, or initial exploration in an area being considered for a new research program. Recent studies have included those on Harrodian growth models, the economic consequences of German reunification, and campaign finance reform.
Working Paper No. 949 | February 2020This paper extends the empirical stock-flow consistent (SFC) literature through the introduction of distributional features and labor market institutions in a Godley-type empirical SFC model. In particular, labor market institutions, such as the minimum wage and the collective bargaining coverage rate, are considered as determinants of the wage share and, in turn, of the distribution of national income. Thereby, the model is able to examine both the medium-term stability conditions of the economy via the evolution of the sectoral financial balances and the implications of functional income distribution on the growth prospects of the economy at hand. The model is then applied to the Greek economy. The empirical results indicate that the Greek economy has a significant structural competitiveness deficit, while the institutional regime is likely debt-led. The policies implemented in the context of the economic adjustment programs were highly inappropriate, triggering private sector insolvency. A minimum wage increase is projected to have a positive impact on output growth and employment. However, policies that would enhance the productive sector’s structural competitiveness are required in order to ensure the growth prospects of the Greek economy.Download:Associated Program(s):Author(s):Christos PierrosRelated Topic(s):
Working Paper No. 946 | February 2020
A Comment on Autor and SalomonsWe show that Autor and Salomons’ (2017, 2018) analysis of the impact of technical progress on employment growth is problematic. When they use labor productivity growth as a proxy for technical progress, their regressions are quasi-accounting identities that omit one variable of the identity. Consequently, the coefficient of labor productivity growth suffers from omitted-variable bias, where the omitted variable is known. The use of total factor productivity (TFP) growth as a proxy for technical progress does not solve the problem. Contrary to what the profession has argued for decades, we show that this variable is not a measure of technical progress. This is because TFP growth derived residually from a production function, together with the conditions for producer equilibrium, can also be derived from an accounting identity without any assumption. We interpret TFP growth as a measure of distributional changes. This identity also indicates that Autor and Salomons’ estimates of TFP growth’s impact on employment growth are biased due to the omission of the other variables in the identity. Overall, we conclude that their work does not shed light on the question they address.Download:Associated Program(s):Author(s):Jesus Felipe Donna Faye Bajaro Gemma Estrada John McCombieRelated Topic(s):
Working Paper No. 943 | January 2020Whether China’s low fertility rate is the consequence of the country’s strict population control policy is a puzzling question. This paper attempts to disentangle the Chinese population control policy’s impacts on the fertility rate from socioeconomic factors using the synthetic control method proposed by Abadie and Gardeazabal (2003). The results indicate that the population control policy significantly decreased China’s birth rate after the “Later, Longer, and Fewer” policy came into force, but had little effect on the birth rate in the long run. We estimate that between 164.2 million and 268.3 million prevented births from 1971 to 2016 can be attributed to the Chinese population control policy. In addition, we implement a placebo study to check the validity of the method and confirm the robustness of the paper’s conclusions.Download:Associated Program:Author(s):Liu Qiang Fernando Rios-Avila Han JiqinRelated Topic(s):
Working Paper No. 942 | January 2020This paper emphasizes the need for understanding the interdependencies between the real and financial sides of the economy in macroeconomic models. While the real side of the economy is generally well explained in macroeconomic models, the financial side and its interaction with the real economy remains poorly understood. This paper makes an attempt to model the interdependencies between the real and financial sides of the economy in Denmark while adopting a stock-flow consistent approach. The model is estimated using Danish data for the period 1995–2016. The model is simulated to create a baseline scenario for the period 2017–30, against which the effects of two standard shocks (fiscal shocks and interest rate shocks) are analyzed. Overall, our model is able to replicate the stylized facts, as will be discussed. While the model structure is fairly simple due to different constraints, the use of the stock-flow approach makes it possible to explain several transmission mechanisms through which real economic behavior can affect the balance sheets, and at the same time capture the feedback effects from the balance sheets to the real economy. Finally, we discuss certain limitations of our model.Download:Associated Program(s):Author(s):Mikael Randrup Byrialsen Hamid RazaRelated Topic(s):
Working Paper No. 940 | November 2019
A Rejoinder and Some CommentsThe critique by Gahn and González (2019) of the conclusions in Nikiforos (2016) regarding what data should be used to evaluate whether capacity utilization is endogenous to demand is weak for the following reasons: (i) The Federal Reserve Board (FRB) measure of utilization is not appropriate for measuring long-run variations of utilization because of the method and purpose of its construction. Even if its difference from the measures of the average workweek of capital(AWW) were trivial, this would still be the case; if anything, it would show that the AWW is also an inappropriate measure. (ii) Gahn and González choose to ignore the longest available estimate of the AWW produced by Foss, which has a clear long-run trend. (iii) Their econometric results are not robust to more suitable specifications of the unit root tests. Under these specifications, the tests overwhelmingly fail to reject the unit root hypothesis. (iv) Other estimates of the AWW, which were not included in Nikiforos (2016) confirm these conclusions. v) For the comparison between the AWW series and the FRB series, they construct variables that are not meaningful because they subtract series in different units. When the comparison is done correctly, the results confirm that the difference between the AWW series and the FRB series has a unit root. (vi) A stationary utilization rate is not consistent with any theory of the determination of capacity utilization. Even if demand did not play a role, there is no reason to expect that all the other factors that determine utilization would change in a fashion that would keep utilization constant.Download:Associated Program(s):Author(s):Related Topic(s):Region(s):United States
Working Paper No. 907 | May 2018The paper discusses the Sraffian supermultiplier (SSM) approach to growth and distribution. It makes five points. First, in the short run the role of autonomous expenditure can be appreciated within a standard post-Keynesian framework (Kaleckian, Kaldorian, Robinsonian, etc.). Second, and related to the first, the SSM model is a model of the long run and has to be evaluated as such. Third, in the long run, one way that capacity adjusts to demand is through an endogenous adjustment of the rate of utilization. Fourth, the SSM model is a peculiar way to reach what Garegnani called the “Second Keynesian Position.” Although it respects the letter of the “Keynesian hypothesis,” it makes investment quasi-endogenous and subjects it to the growth of autonomous expenditure. Fifth, in the long run it is unlikely that “autonomous expenditure” is really autonomous. From a stock-flow consistent point of view, this implies unrealistic adjustments after periods of changes in stock-flow ratios. Moreover, if we were to take this kind of adjustment at face value, there would be no space for Minskyan financial cycles. This also creates serious problems for the empirical validation of the model.Download:Associated Program(s):The State of the US and World Economies Monetary Policy and Financial Structure Explorations in Theory and Empirical AnalysisAuthor(s):Related Topic(s):Region(s):United States
Working Paper No. 905 | May 2018
The Vested Interests, Limits to Reform, and the Meaning of Liberal DemocracyI subject some aspects of Roosevelt’s “New Deal” to critical analysis, with particular attention to what is termed “liberal democracy.” This analysis demonstrates the limits to reform, given the power of “vested interests” as articulated by Thorstein Veblen.
While progressive economists and others are generally favorably disposed toward the New Deal, a critical perspective casts doubt on the progressive nature of the various programs instituted during the Roosevelt administrations. The main constraint that limited the framing and operation of these programs was that of maintaining liberal democracy. The New Deal was shaped by the institutional forces then dominant in the United States, including the segregationist system of the South. In the end, vested interests dictated what transpired, but what did transpire required a modification of the understanding of liberal democracy.Download:Associated Program(s):Author(s):Related Topic(s):
Book Series | March 2018
Edited by Marcella Corsi, Jan Kregel, and Carlo D'IppolitiEdited by Marcella Corsi, Sapienza University of Rome, Levy Institute Director of Research Jan Kregel, and Carlo D’Ippoliti, Sapienza University of Rome, this new collection of 16 essays is dedicated to Alessandro Roncaglia and deals with the themes that “have characterized his work or represent expressions of his personality, his interests and method," particularly his contributions to the interpretation of classical political economists as a means for informing present-day policy.
Published by: Anthem Press
Working Paper No. 879 | December 2016
This paper presents a methodological discussion of two recent “endogeneity” critiques of the Kaleckian model and the concept of distribution-led growth. From a neo-Keynesian perspective, and following Kaldor (1955) and Robinson (1956), the model is criticized because it treats distribution as quasi-exogenous, while in Skott (2016) distribution is viewed as endogenously determined by a series of (exogenous) institutional factors and social norms, and therefore one should focus on these instead of the functional distribution of income per se. The paper discusses how abstraction is used in science and economics, and employs the criteria proposed by Lawson (1989) for what constitutes an appropriate abstraction. Based on this discussion, it concludes that the criticisms are not valid, although the issues raised by Skott provide some interesting directions for future work within the Kaleckian framework.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 857 | December 2015
This paper describes the transformations in federal classification of ethno-racial information since the civil rights era of the 1960s. These changes were introduced in the censuses of 1980 and 2000, and we anticipate another major change in the 2020 Census. The most important changes in 1980 introduced the Hispanic Origin and Ancestry questions and the elimination of two questions on parental birthplace. The latter decision has made it impossible to adequately track the progress of the new second generation. The change in 2000 allowed respondents to declare origins in more than one race; the anticipated change for 2020 will create a single question covering race and Hispanic Origin—or, stated more broadly, race and ethnic origin. We show that the 1980 changes created problems in race and ethnic classification that required a “fix,” and the transformation anticipated for 2020 will be that fix. Creating the unified question in the manner the Census Bureau is testing will accomplish by far the hardest part of what we believe should be done. However, we suggest two additional changes of a much simpler nature: restoring the parental birthplace questions (to the annual American Community Survey) and possibly eliminating the Ancestry question (the information it gathered will apparently now be obtained in the single race-and-ethnicity question). The paper is historical in focus. It surveys how the classification system prior to 1980 dealt with the tension between ethno-racial continuity and assimilation (differently for each major type of group); how the political pressures producing the changes of 1980 and 2000 changed the treatment of that tension; and, finally, the building pressure for a further change.Download:Associated Program(s):Immigration, Ethnicity, and Social Structure Economic Policy for the 21st Century Explorations in Theory and Empirical AnalysisAuthor(s):Joel Perlmann Patrick NevadaRelated Topic(s):