Business cycle theories after Keynes: A brief review considering the notions of equilibrium and instability

Structural Change and Economic Dynamics - March 2023

In this paper, we review the theories of business cycles in the 20th century after the work of John Maynard Keynes. Fluctuations in economic activity have been observed with considerable regularity since the beginning of the last century, motivating empirical efforts to, identify, measure, and understand business cycles, contributing to the identification of stylized facts on business cycles, facts the business cycle theories should try to explain. Theories however have been very distinct through the years. Despite the different explanations for the sources of cycles, in mainstream economics, there was the underlying hypothesis of stability and equilibrium as a main characteristic of the economic system. The heterodox view on business cycles, in contrast, starts with Keynes pre-dynamic theory, considering the intrinsic instability of the system and extends through several other authors and theories. In this paper, we use the concepts of equilibrium and instability as a demarcating guide to separate theories in two groups: the mainstream view and the heterodox view. We notice however that, even though different authors and theories might share similar views on the self-equilibrating property of the economic system, there is no coherent integration between similar theories. We conclude the paper with some methodological insights that might lead to a coherent and integrated approach to explain business cycles in the heterodox view, requiring new and complex methods and tools.

Why is Bitcoin not Money? A Post-Keynesian View 

Brazilian Keynesian Review - June 2021

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. However, bitcoin is 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. 

Discussing the role of fiscal policy in a demand-led agent-based growth model 

EconomiA - June 2020

The global financial crisis led to a crisis in mainstream macroeconomic theory and to questioning the economic policies implemented before and after the crisis. One of the most relevant controversy concerns the role of fiscal policy. In order to present a different theoretical approach and discuss the role of fiscal policy, in this paper, we present an agent based micro-macro multisectoral model to analyze the fiscal policy in a complex evolutionary economy. We evaluate the impact of a set of different fiscal rules in terms of short run fluctuations and long-term growth. The main motivations are both to influence the public debate and to present an important theoretical tool. In terms of economic policy debate, in particular, we analyze the impact of the approval of a new fiscal rule that prevents any real growth of federal public expenditures for at least ten years in Brazil. Based on the simulation model, we compare 5 different combinations of fiscal policy on how they affect macro variables, such as GDP growth rate, GDP volatility and likelihood of crisis. We also test how each fiscal policy combination reacts to an external crisis. Results show that all scenarios that impose a tighter constraint to government spending present signs of self-defeating fiscal consolidation, including effect on firms’ indebtedness. On the other hand, unconstrained countercyclical policy prevents contagious effect of external crisis, leading to a better economic performance and reducing the likelihood of crisis.