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Report No. 3Report July 2006
Can the growth in the current account deficit be sustained? A new Strategic Analysis by President Dimitri B. Papadimitriou and Research Scholars Edward Chilcote and Gennaro Zezza focuses on net income as an important component of the deficit, particularly the interest paid by the United States on American debt held abroad. Contents: NEW STRATEGIC ANALYSIS […] -
Working Paper No. 457Why Central Banks (and Money) “Rule the Roost”
Some have argued that a significant decrease in the demand for money, due to financial innovations, could imply that central banks are unable to implement effective monetary policies. This paper argues that central banks are always able to influence the economy’s interest rates, because their liability is the economy’s unit of account. In this sense, […] -
Working Paper No. 456
Asset Prices, Financial Fragility, and Central Banking
The paper reviews the current literature on the subject in both the New Consensus and Post Keynesian frameworks. It shows that both approaches give to central banks a wrong goal (inflation, distribution, curbing speculation, and so on) and a wrong instrument (interest rate rule). The paper claims that central banks should focus their attention on […] -
Working Paper No. 455
The Minskyan System, Part III
This is the last part of a three-part analysis of the Minskyan Framework. The paper presents a model that studies some of the features presented in Parts I and II. The model is Post-Keynesian in nature and puts a large emphasis on the role of conventions and the importance of the financial side. In doing […] -
Working Paper No. 454
How Does Household Production Affect Earnings Inequality?
Although income inequality has been studied extensively, relatively little attention has been paid to the role of household production. Economic theory predicts that households with less money income will produce more goods at home. Thus extended income, which includes the value of household production, should be more equally distributed than money income. We find this […] -
Public Policy Brief No. 85The Fallacy of the Revised Bretton Woods Hypothesis
The stability of the international financial system is in doubt. Analysis of the system has focused mainly on the sustainability of financing the American trade deficit and has failed to understand the microeconomics of transactions within the system. According to this brief by Thomas I. Palley, the international financial system is unsustainable for reasons of […] -
Working Paper No. 453
The Minskyan System, Part II
This is the second part of a three-part analysis of the Minskyan framework. It studies in detail the dynamics at the root of the endogenous financial weakening of capitalist economic systems. This part combines the properties presented in part I with other important concepts, such as the paradox of leverage and conventional expectations, to explain […] -
Working Paper No. 452
The Minskyan System, Part I
This is the first part of a three-part analysis of the Minskyan framework. Via an extensive review of the literature, this paper looks at 12 essential elements necessary to get a good understanding of Minsky’s theory, and argues that those elements are central to comprehend how a monetary production economy works. This paper also shows […] -
Public Policy Brief Highlight No. 85
The Fallacy of the Revised Bretton Woods Hypothesis
The stability of the international financial system is in doubt. Analysis of the system has focused mainly on the sustainability of financing the American trade deficit and has failed to understand the microeconomics of transactions within the system. According to this brief by Thomas I. Palley, the international financial system is unsustainable for reasons of […] -
US economy and the deficit predicament
Copyright 2006 The Financial Times Limited (London, England) Wednesday, May 30, 2006; Financial Times; USA Edition; Letters to the Editor Sir, Martin Feldstein (“The falling dollar sets a test for Asia and Europe”, May 26) provides a good account of the problems caused by global imbalances [which closely resembles, in its structure, the analysis contained in many […] -
Working Paper No. 451
Time and Money
Time and money are basic commodities in the utility function and are substitutes in real terms. To a certain extent, having time and money is a matter of either/or, depending on individual preferences and budget constraints. However, satisfaction with time and satisfaction with money are typically complements, i.e., individuals tend to be equally satisfied with […] -
Working Paper No. 450
Extending Minsky’s Classifications of Fragility to Government and the Open Economy
Minsky’s classification of fragility according to hedge, speculative, and Ponzi positions is well-known. He wrote about fragile positions of individual firms and of the economy as a whole, with the economy transitioning naturally from a robust financial structure (dominated by hedge units) to a fragile structure (dominated by speculative units). In most of Minsky’s writing, […]