Varieties of Economic Growth Regimes, Types of Macroeconomic Policies, and Policy Regime: A Post-Keynesian Analysis
AbstractThis 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 InfoPaper provided by Graduate School of Economics Project Center, Kyoto University in its series Discussion papers with number e-12-008.
Length: 45 pages
Date of creation: Nov 2012
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Economic Growth Regime; Policy Regime; Post-Keynesian Model;
Find related papers by JEL classification:
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
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