Monetary Policy and Income Distribution in a Multisectoral AB-SFC Model

Monetary Policy, and Income and Wealth Inequality - September 2022

Before the 2008 Crisis, monetary policy, via changes in the basic interest rate, was the main policy instrument to stabilize the economy. But such policies not only failed to generate adequate responses to the financial crisis but also could be accounted responsible for the increasing inequality. This result is not clear, however, if one remains bound to the traditional monetary policy theory and conventional models. So, in this paper, we build up an Agent-Based, Stock-Flow Consistent, Heterodox Disequilibrium Model to be able to analyse and evaluate the effects of different levels of basic interest rates, especially the distributive effects. Using computer simulations, we show that the basic interest rate has a key role when firms compete in oligopolistic markets and face financial constraints and costs. In such circumstances, increases in the interest rate can be responsible for price increases, creating the price puzzle problem. In addition, it forces redistribution of income in favour of the financial system and pressures the profit rate of industrial firms, which will raise prices and deteriorate the wage share. The final distributive effect between these three sources of income will ultimately depend on the power of these agents: the bargaining power of the workers to claim higher wages and the market power of the firms to raise prices.

​Technical Change and Effective Demand: Insights in a New Simplified Version of the Micro-Macro Multisectoral Model

National Economics Meeting ANPEC - December 2020

This paper presents a new simplified version of the Multisectoral Micro-Macro (MMM) model presented in Possas and Dweck (2004) and Dweck (2006). We use the minimum structural specification of the model, including a simplified version of the government and the external sector, as we focus on the core productive structure of the model. Those simplifications allowed us to implement an automatic generalized calibration and initialization mechanism. Under some hypotheses, we can calibrate and initialize any configuration based only on a small set of parameters, facilitating a sensitivity analysis. Those methodological procedures are necessary to reach two goals: to test under which parameter specifications the main general results hold and to turn the model more general, user friendly, and modular. We show that our simplified version is able to replicate the same general results as the consolidated version, with more statistical significance, using a MonteCarlo exercise with 100 runs. In preliminary tests, we address the relationship between technological change,effective demand, and endogenous growth. Finally, a Global Sensitivity Analysis shows that autonomous consumption is the most important element for GDP growth, confirming Kalecki (1941) hypothesis of a necessary demand compensation mechanism for technical change to impact economic growth.

Why is Bitcoin not Money? A Post-Keynesian View

Brazilian Keynesian Association Meeting - August 2019

​Bitcoin got increasing popularity and was considered by the public as a great investment due to huge overvaluation in 2017. In parallel, economists and high-level technicians started to advocate the use of bitcoin and other cryptographic currencies as an alternative to national currencies. Some authors even defend the cryptographic currency as a solution to an international monetary and payment system. However, bitcoin and other cryptographic currencies are far from being considered as money, so it is hard for a monetary and payment system to emerge based on these technologies. This paper, apart from briefly presenting the Bitcoin System, shows why bitcoin is not money in the light of the Keynesian theory. We use Keynesian essential properties of Money and Modern Money Theory to define money, and to show that cryptographic currencies are not money. We then go back to Keynes' theory of portfolio choice, established in Chapter 17 of the General Theory, to show what bitcoin really is: at most, bitcoin is a perfect virtual commodity, a virtual liquid speculative asset.

​Tomada de Decisão e Formação de Expectativas sob Incerteza: Convenções e o Ciclo Econômico na Perspectiva Minskyana

Brazilian Keynesian Association Meeting - August 2018

Based on the writings of Hyman Minsky, the inherent instability of capitalism stems from the endogenously increasing financial fragility. Individual firms, and consequently, the economy as a whole, assume more fragile financial positions as rational behavior in the face of uncertainty, becoming more susceptible to interest rate variations. Ultimately, they can become insolvent and trigger a financial crisis. The goal of this paper is to analyze theoretically the role of the expectations and conventions in this process described above, as well as to incorporate the role of conventions in the formation of interest rates and monetary policy. The hypothesis is that, in a world where uncertainty can’t be eliminated, conventions are critical to the economic cycle. For this, a review of the concept of convention in the formation of expectation and decision making under uncertainty will be done, after a contextualization of the theoretical debate. Next, we will analyze how the conventions affect the economic cycle to Minsky and finally we extend the analysis of conventions for the formation of interest rates and for monetary policy, which also impact on the cycle.

​Porque Não Utilizar Taxa de Juros como Instrumento de Política Monetária e Quais as Alternativas? Uma Visão Minskyana

Brazilian Keynesian Association Meeting - August 2017

The use of the interest rate as the instrument of monetary policy is quite questionable, both in the empirical field and in the theoretical field. In the empirical field, much is discussed about the effectiveness of monetary policy, regarding the asymmetry of interest response to positive and negative shocks, and, more recently, the zero lower bound problem. In the theoretical field, few approaches discuss the negative side of using the interest rate as an instrument of monetary policy. One of these few approaches is the Minskyan view, which warns of the possibility of the interest rate affecting the financial stability of the economy. This paper aims to present the Minsky vision and to show, in the theoretical field, why the interest rate is not the best option of a monetary policy instrument. Finally, the alternatives are presented in this view.