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Varieties of Economic Growth Regimes, Types of Macroeconomic Policies, and Policy Regime: A Post-Keynesian Analysis

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  • Hiroshi Nishi

Abstract

This study explores the effects of macroeconomic policies on measures of macroeconomic performance such as growth and inflation by setting up a dynamic post-Keynesian model with government and central bank interventions. In doing so, this study reconsiders the arguments in favor of a policy regime. The model in this paper generates several varieties of economic growth regimes and inflation dynamics. The economic growth regimes are defined by the relationship between economic growth, the income distribution, and government debt finance. In this paper, the income distribution-growth regimes are the wage-led and profit-led growth regimes. The debt-growth regimes are the debt-led and debt-burdened growth regimes. Moreover, the inflation dynamics are derived from the institutional configuration of the labor market. Specifically, the relevant labor market institutions are the bargaining position of workers and employment security. In this setting, this paper reconsiders the discussion of the policy regime. According to Adam Przeworski, a policy regime is defined as an equilibrium in which policies are similar across different parties. To examine whether such a political constellation has a favorable effect on macroeconomic performance, this paper considers macroeconomic policies based on different types of monetary and fiscal policy rules. Specifically, this paper compares three types of post-Keynesian interest rate policy rules, the Smithin rule, the Pasinetti rule, and the Kansas City rule. Using a theoretical analysis, this paper reveals that these interest rate policy rules and fiscal policies have different impacts on inflation and the economic growth rate. Moreover, this result has an important implication for the discussion of the policy regime. If the policy regime is defined as an equilibrium in which policies are similar across different parties, such a regime may not always improve macroeconomic performance. A macroeconomic policy should be compatible with the type of growth regime and inflation dynamics. An economic policy may be effective under one economic growth regime but not under another, so always sticking to the same policy may not produce optimal results. This implication questions the desirability of a policy regime. This paper concludes that there is no one best policy for growth and inflation and that a policymaker should choose economic policies by considering the economic growth regime. In this sense, the economic growth regime and the policy regime are interdependent.

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Bibliographic Info

Paper provided by Graduate School of Economics Project Center, Kyoto University in its series Discussion papers with number e-12-008.

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Length: 45 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:kue:dpaper:e-12-008

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Keywords: Economic Growth Regime; Policy Regime; Post-Keynesian Model;

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References

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  1. Eckhard Hein, 2007. "Interest Rate, Debt, Distribution And Capital Accumulation In A Post-Kaleckian Model," Metroeconomica, Wiley Blackwell, vol. 58(2), pages 310-339, 05.
  2. 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).
  3. Amable, Bruno & Azizi, Karim, 2011. "Varieties of capitalism and varieties of macroeconomic policy. Are some economies more procyclical than others?," MPIfG Discussion Paper 11/6, Max Planck Institute for the Study of Societies.
  4. L. Randall Wray, 2007. "A Post Keynesian view of central bank independence, policy targets, and the rules versus discretion debate," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(1), pages 119-141, October.
  5. Hiroaki Sasaki & Shinya Fujita, 2012. "The Importance Of The Retention Ratio In A Kaleckian Model With Debt Accumulation," Metroeconomica, Wiley Blackwell, vol. 63(3), pages 417-428, 07.
  6. Amitava Krishna Dutt, 2012. "Distributional dynamics in Post Keynesian growth models," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 34(3), pages 431-452, April.
  7. Hiroshi Nishi, 2012. "Structural VAR analysis of debt, capital accumulation, and income distribution in the Japanese economy: a Post Keynesian perspective," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 34(4), pages 685-712, July.
  8. Stockhammer, Engelbert & Onaran, Ozlem, 2004. "Accumulation, distribution and employment: a structural VAR approach to a Kaleckian macro model," Structural Change and Economic Dynamics, Elsevier, vol. 15(4), pages 421-447, December.
  9. Mark Setterfield, 2009. "Fiscal and monetary policy interactions: lessons for revising the EU Stability and Growth Pact," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(4), pages 623-643, July.
  10. You, Jong-Il & Dutt, Amitava Krishna, 1996. "Government Debt, Income Distribution and Growth," Cambridge Journal of Economics, Oxford University Press, vol. 20(3), pages 335-51, May.
  11. Claude Gnos & Louis-Philippe Rochon, 2007. "The New Consensus and Post-Keynesian Interest Rate Policy," Review of Political Economy, Taylor & Francis Journals, vol. 19(3), pages 369-386.
  12. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
  13. Louis-Philippe Rochon & Mark Setterfield, 2007. "Interest rates, income distribution, and monetary policy dominance: Post Keynesians and the "fair rate" of interest," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(1), pages 13-42, October.
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