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Does the demand regime matter over the medium run? Revisiting distributional issues in a portfolio framework under different exchange rate regimes

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  • Razmi, Arslan

    (Department of Economics, University of Massachusetts, Amherst)

Abstract

Is growth in capitalist economies wage-led or profit-led? Empirical studies have found conflicting results for different countries and periods. Possible reasons may include the endogeneity of distributional shares, differences in the monetary policy/exchange rate regimes across countries, and divergence between macro behavior in the short- and medium-runs. I theoretically explore these possibilities using a portfolio balance framework to keep track of asset stocks and wealth effects over time. With fixed exchange rates, the Central Bank’s need to intervene in the asset market via official reserve transactions results in assigning a crucial role to the current account in constraining accumulation and output. The binding nature of this constraint vanishes with flexible exchange rates. Regardless of the exchange rate regime, the most important message that emerges is that, once we impose plausible constraints on dynamic behavior, the demand regime ceases to determine the effect of redistribution on the steady state levels of utilization, profit rates, capital, and wealth.

Suggested Citation

  • Razmi, Arslan, 2015. "Does the demand regime matter over the medium run? Revisiting distributional issues in a portfolio framework under different exchange rate regimes," UMASS Amherst Economics Working Papers 2015-11, University of Massachusetts Amherst, Department of Economics, revised 2017.
  • Handle: RePEc:ums:papers:2015-11
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    References listed on IDEAS

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    1. Razmi, Arslan, 2014. "Re-Distribution, Aggregate Demand, and Growth in an Open Economy: The Crucial Interaction of Portfolio Considerations and External Account Constraints," UMASS Amherst Economics Working Papers 2014-07, University of Massachusetts Amherst, Department of Economics.
    2. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    3. Blecker, Robert A, 1989. "International Competition, Income Distribution and Economic Growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 13(3), pages 395-412, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Demand regime; wage-led growth; stagnationism; exhilarationism; neo-Kaleckian models; portfolio balance model; wealth effects;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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