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The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth

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  • Hein, Eckhard

Abstract

We review the main arguments put forward against the horizontalist view of endogenous credit and money and an exogenous rate of interest under the control of monetary policies. We argue that the structuralist arguments put forward in favour of an endogenously increasing interest rate when investment and economic activity are rising, due to increasing indebtedness of the firm sector or decreasing liquidity in the commercial bank sector, raise major doubts from a macroeconomic perspective. This is shown by means of examining the effect of increasing capital accumulation on the debt-capital ratio of the firm sector in a simple Kaleckian distribution and growth model. In particular we show that rising (falling) capital accumulation may be associated with a falling (rising) debt-capital ratio for the economy as a whole and hence with the ‘paradox of debt’. Therefore, the treatment of the rate of interest as an exogenous macroeconomic distribution parameter in Post-Keynesian distribution and growth models seems to be well founded.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23372.

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Date of creation: Jun 2010
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Handle: RePEc:pra:mprapa:23372

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Keywords: interest rate; horizontalism; distribution; debt; capital accumulation;

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  1. John Smithin, 1997. "An Alternative Monetary Model of Inflation and Growth," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(4), pages 395-409.
  2. Antonio J. A. Meirelles & Gilberto Tadeu Lima, 2004. "Debt, Financial Fragility And Economic Growth: A Post-Keynesian Macromodel," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of G 094, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  3. Lavoie, Marc, 1999. "The Credit-Led Supply of Deposits and the Demand for Money: Kaldor's Reflux Mechanism as Previously Endorsed by Joan Robinson," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 23(1), pages 103-13, January.
  4. Eckhard Hein, 2006. "Wage Bargaining and Monetary Policy in a Kaleckian Monetary Distribution and Growth Model: Trying to Make Sense of the NAIRU," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, Edward Elgar, vol. 3(2), pages 305-329.
  5. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 25(6), pages 693-723, November.
  6. Eckhard Hein, 2004. "Interest rate, debt, distribution and capital accumulation in a post-Kaleckian model," Macroeconomics, EconWPA 0412005, EconWPA.
  7. Marc Lavoie, 1995. "Interest Rates In Post-Keynesian Models Of Growth And Distribution," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 46(2), pages 146-177, 06.
  8. Peter Howells, 2005. "The Endogeneity of Money: Empirical Evidence," Working Papers, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol 0513, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  9. Arestis, Philip & Howells, Peter, 1996. "Theoretical Reflections on Endogenous Money: The Problem with 'Convenience Lending.'," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 20(5), pages 539-51, September.
  10. Taylor, Lance, 1985. "A Stagnationist Model of Economic Growth," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 9(4), pages 383-403, December.
  11. Eckhard Hein & Carsten Ochsen, 2003. "Regimes of Interest Rates, Income Shares, Savings and Investment: A Kaleckian Model and Empirical Estimations for some Advanced OECD Economies," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 54(4), pages 404-433, November.
  12. Eckhard Hein & Engelbert Stockhammer, 2010. "Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 22(3), pages 317-354.
  13. Lavoie, M, 1995. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Working Papers, University of Ottawa, Department of Economics 9513e, University of Ottawa, Department of Economics.
  14. Amitava Krishna Dutt, 1995. "Internal Finance And Monopoly Power In Capitalist Economies: A Reformulation Of Steindl'S Growth Model," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 46(1), pages 16-34, 02.
  15. Eckhard Hein, 2005. "Interest, debt and capital accumulation - a Kaleckian approach," Macroeconomics, EconWPA 0510007, EconWPA.
  16. Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Macroeconomics, EconWPA 0004049, EconWPA.
  17. Thomas I. Palley, 1994. "Competing Views Of The Money Supply Process: Theory And Evidence," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 45(1), pages 67-88, 02.
  18. Wray, L Randall, 1992. "Alternative Theories of the Rate of Interest," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 16(1), pages 69-89, March.
  19. Edward Amadeo & A.K Dutt, 1991. "A post-Keynesian theory of growth, interest and money," Textos para discussão, Department of Economics PUC-Rio (Brazil) 264, Department of Economics PUC-Rio (Brazil).
  20. Hein, Eckhard, 1999. "Interest Rates, Income Shares, and Investment in a Kaleckian Model," MPRA Paper, University Library of Munich, Germany 18607, University Library of Munich, Germany.
  21. Giuseppe Fontana, 2003. "Post Keynesian Approaches to Endogenous Money: A time framework explanation," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(3), pages 291-314.
  22. Giuseppe Fontana, 2004. "Rethinking Endogenous Money: A Constructive Interpretation Of The Debate Between Horizontalists And Structuralists," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 55(4), pages 367-385, November.
  23. Giuseppe Fontana, 2004. "Hicks on monetary theory and history: money as endogenous money," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 28(1), pages 73-88, January.
  24. Arestis, Philip & Howells, Peter, 1999. "The Supply of Credit Money and the Demand for Deposits: A Reply," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 23(1), pages 115-19, January.
  25. Thomas I. Palley, 1996. "Accommodationism versus Structuralism: Time for an Accommodation," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 18(4), pages 585-594, July.
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