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A Post-Keynesian macroeconomic policy mix as an alternative to the New Consensus approach

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  • Eckhard Hein

    ()
    (IMK at the Hans Boeckler Foundation)

  • Engelbert Stockhammer

    ()
    (Vienna University of Economics and Business Administration)

Abstract

In a Post-Keynesian (PK) model we show that inflation targeting monetary policies, as the main stabilisation tool proposed by the New Consensus Model (NCM), in the short run are only adequate for certain values of the model parameters, but are either unnecessary, counterproductive, or limited in their effectiveness for other values. Taking into account medium-run cost and distribution effects of interest rate variations renders monetary policies completely inappropriate as an economic stabiliser. Based on these results we argue that the NCM macroeconomic policy assignment should be replaced by a PK assignment. Enhancing employment without increasing inflation will be possible if macroeconomic policies are coordinated along the following lines: The central bank targets distribution between rentiers, on the hand, and firms and employees, on the other hand, and sets low real interest rates, wage bargaining parties target inflation and fiscal policies are applied for short- and medium-run real stabilisation purposes.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 10-2007.

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Length: 27 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:imk:wpaper:10-2007

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Related research

Keywords: Macroeconomic policies; New Consensus Model; Post-Keynesian Model; inflation targeting;

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Cited by:
  1. Hein, Eckhard & Schoder, Christian, 2009. "Interest rates, distribution and capital accumulation: A Post-Kaleckian perspective on the US and Germany," IPE Working Papers 04/2009, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  2. Gabriel Porcile & Alexandre C.Gomes de Souza & Ricardo Viana, 2008. "Developing Countries in Times of Globalization: A Kaleckian-Minskyan Macro-Model," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807180125330, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  3. Porcile, Gabriel & de Souza, Alexandre Gomes & Viana, Ricardo, 2011. "External debt sustainability and policy rules in a small globalized economy," Structural Change and Economic Dynamics, Elsevier, vol. 22(3), pages 269-276, September.
  4. Hein, Eckhard & Truger, Achim, 2010. "Finance-dominated capitalism in crisis: The case for a Global Keynesian New Deal," IPE Working Papers 06/2010, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  5. Eckhard Hein & Marc Lavoie & Till van Treeck, 2011. "Some instability puzzles in Kaleckian models of growth and distribution: a critical survey," Cambridge Journal of Economics, Oxford University Press, vol. 35(3), pages 587-612.

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