2013년 11월 24일 일요일

[Célia Firmin's review of] Monetary Economics: An Integrated Approach to Credit, Money, Income, Production,and Wealth



※ 발췌(excerpt): 

The work of Wynne Godley and Marc Lavoie offers a novel approach, based on a consistent accounting methodology relating stocks and flows, and making use of Post-Keynesian behavioural assumptions that tie the analysis to a monetary economics perspective. The authors’ objective is to provide an analytical framework that could provide an alternative to the standard approach, by taking into account comprehensively the interrelations between real and financial variables.

( ... ... )

The first two chapters outline the methodology and present the accounting matrices constituting the backbone of “stock-flow consistent” models. Applying this methodology to the monetary circuit helps to show that money cannot but be endogenous, a claim that constitutes a major breakpoint between standard analysis and Post-Keynesian analysis.

The model proposed in the third chapter outlines the principles of the Keynesian multiplier. An important conclusion follows from this chapter: the public deficit and the public debt are endogenous variables that are not really under the realm of government, as they depend ultimately on the saving decisions of the private sector. The fourth chapter develops a model of portfolio choice. Holdings of money balances depend on the standard Keynesian motives (transaction, precaution, and speculation), while arbitrage between assets is based on rates of return, income, wealth, and liquidity preference. The money supply is endogenous by nature—it is driven by demand—while interest rates are exogenous variables.

Subsequent chapters include new material or specify some key points (the preference for liquidity, the role of time, the decomposition of profits, cost-plus or markup pricing procedures, the open economy...). Chapter 11 provides a growth model in which fiscal policy and monetary policy are introduced.

One of the main results of this work concerns precisely the effectiveness of fiscal policy in an economy where financial variables play an important role. ( ... ) Moreover, the government deficit is predetermined by the level of saving of private agents, firms, and households. The state cannot seek a balanced budget without giving up the fight against unemployment, which calls into question the criteria of the European stability pact.

Moreover, another interesting result coming out from the simulations is the inability of household debt to drive growth in the long run. Instead, the servicing cost of household debt eventually reduces consumption. The amounts previously borrowed by households lead to a decline in consumer demand, thus disabling the growth regime driven by household debt.

The models presented here therefore provide an explanation of the current economic crisis— an explanation that goes beyond the role of financial variables, linking these to “real” and structural causes, and showing that recovery cannot be envisaged without a proactive fiscal policy.

A critical analysis of the SFC methodology

Rather than quantifying the effects obtained, this method tends to give a qualitative narrative vision of the observed sequences of events, which may be a limit to the analysis. Moreover, the complexity of the models sometimes leads to difficulties in interpreting the results; in particular, in understanding the causality between variables. Such a method only allows the analysis of a local equilibrium, casting doubt on its uniqueness and leaving open the possibility of other regimes linked to different parameter values. It is possible to solve this problem by trial and error, by testing for different parameter values in an attempt to determine the properties of other steady states of the model. Thus, the stability conditions are not rigorously defined. It is not possible to ensure that all configurations of the model, all regimes, have been found and analyzed. For example, in the model in Chapter 11, a higher rate of interest produces a paradoxical effect, bringing about a positive impact on output and employment in the long run. Interest payments are treated like a public expenditure, generating a positive multiplier effect, despite the negative short-run impact on business investment. Is this result robust to changes in the parameter values? Is it possible to identify a regimfiae where the negative effect on investment outweighs the long-run positive effect on aggregate demand arising from the higher cost of servicing the public debt? Doubts about the possible existence of other regimes based on different parameter values are certainly the main limitation of model resolution by numerical simulation.

Moreover, were there several regimes, it would be difficult to find the precise conditions of transition from one regime to another. Finally, it is not possible to integrate several shocks within a single simulation, because it would then be impossible to know what comes from one shock rather than from another. Effects that contradict one another would also be hard to identify in this type of analysis.

( ... ) Within this framework—and this is one of the main results—the money supply can only be endogenous, it comes from the financing needs of the economy (investment, consumption, etc.), the real and financial variables are fully embedded, there are several assets and rates of return, and financial and monetary policy operations are fully modelled. All this provides an analytical key that is highly useful for our understanding of the functioning of contemporary economies. The integrated inclusion of financial and monetary variables does not change the usual Keynesian claims with regard to the major role played by fiscal policy in reducing unemployment and boosting economic growth. These conclusions, submitted before the eruption of the current global crisis, should be brought back to center stage, and they clearly show, if it ever was in need of being demonstrated, the analytical relevance of Post-Keynesian models.

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