International financialisation,developing countries and the contradictions of privatised Keynesianism

This paper contributes to the understanding of the impact of international financialisation on developing countries.It is generally understood that developing economies are part of the global financialisation process,as exporters of goods to‘debt-led’economies and as recipient of foreign capital inflows.This paper argues that a key process connecting these two aspects has been‘privatised Keynesianism’,the policy regime that sustained financialisation in advanced economies by promoting low interest rates and asset appreciation.A consequence of this regime is to induce pressure on global financial institutions to look for returns and profits in the developing world.Such a mechanism represents a fundamental connection between the developing countries and financialisation at the global level,beside the spread of financial liberalisation.In the post-crisis environment,this connection remains strong and has become even more dangerous for developing countries.

On the “Generality” of the General Theory. Or Why Keynes Lost His Battle and What to Do to Re-win It Again

The paper emphasizes the true“generality”of the General Theory(GT)in the face of the dominant view,according to which Keynes’s theory is captured by“Keynesian outcomes”in axiomatic general equilibrium models due to market imperfections.However,it argues that the advocates of generality must make a serious effort to re-conceptualize the GT in a very broad perspective.One must understand both its limitations and why the generality debate after the GT has failed to reconsider it in a proper way and what to do to restore Keynes’s generality claim in the present context.This paper’s contribution is twofold.The first is to make a distinction between three different dimensions of the generality issue and suggest that Keynes failed to grasp their full significance because he was facing the Marshallian orthodoxy,rather than general equilibrium.The second contribution is to suggest that one way to restore Keynes’s generality claim is to stress that he belongs to an alternative paradigm that has several features in common with contemporary modernist revolution and with Einstein’s relativity theory in particular.

Credit Risk Model Taking Account of Inflation and Its Contribution to Macroeconomic Discussion on Effect of Inflation on Output Growth

We use Extended Merton model(EMM)for estimating the firm’s credit risks in the presence of inflation.We show quantitatively that inflation is an influential factor making either a benign or adverse effect on the firm’s survival,supporting at the microeconomic level New Keynesian findings of the nonlinear inflation effect on output growth.Lower inflation increasing the firm’s expected rate of return can raise its mean year returns and decrease its default probability.Higher inflation,decreasing the expected rate return,makes the opposite effect.The magnitude of the adverse effect depends on the firm strength:for a steady firm,this effect is small,whereas for a weaker firm,it can be fatal.EMM is the only model taking account of inflation.It can be useful for banks or insurance companies estimating credit risks of commercial borrowers over the debt maturity,and for the firm’s management planning long-term business operations.

Structural Fiscal Regulation and Choice of Instruments in the New Normal

Based on the overall consideration of individual behaviors of Ricardian and non-Ricardian households, this paper develops a New Keynesian dynamic stochastic general equilibrium(DSGE) model to form a relatively systematic research framework for analyzing the economic effects of structural fiscal instruments. Our study findsthat great differences exist in the macroeconomic effects of different fiscal instruments, suggesting that the government should prudently select these fiscal instruments in fiscal macro-control. The simulating results of fiscal shocks show that the effect of tax cut is superior to the effect of increased spending. In the context of slowing economic growth and less potent stimulation policy, the government should transform its previous regulatory approach of fiscal policy and shift from hefty spending stimulus policy to structural tax cuts. This paper believes that China should step up the implementation of public-private partnership, increase its spending on social security, healthcare, pension and public services and facilitate the transition toward a service-based government; and that tax policy should focus on structural tax cuts on consumption to promote the transition of demand structure toward consumption-driven.

New Keynesian Model and Inflation Prediction

Recently, much dispute has occurred about the validity of the New Keynesian model from both theoretical and empirical views. However, a few studies have analyzed this model from the empirical perspective. Few other studies have analyzed this model directly or nearly directly. This article empirically examines the New Keynesian model focusing on inflation forecast. Generalized method of moments （GMM） is used to examine whether the typical Keynesian model with Taylor rule is empirically appropriate for the US, UK, Euro area, and Japan. The results showed： （1） the New Keynesian model fits well in most cases and explains the real economy well. Taylor rule also fits well for most cases; （2） Rational expectations for inflation rates may not be useful based on this model When AR （1） （time series analysis） model is used to capture inflation expectations instead of one-time ahead real values, the model fits well. With measured expectations, the relative weight of the forward-looking terms increase on the cost of lagged inflation and output terms, even up to the point at which the lagged inflation terms are no longer needed to rescue the new Keynesian model; and （3） Forward-looking variables play more important roles than backward-looking ones in economic activity. Results with expectations with forward-looking terms perform better in general. This New Keynesian model may reduce the importance of lagged output in some cases

Rising Labor Costs Exert Tenacious Effects on Inflation

With diminishing population divident, rising labor costs＇ will become a medium- to long-term trend and this change will significantly affect price formation and the direction of development in China. This paper uses a New Keynesian Phillips Curve （NKPC） model to conduct empirical analysis on all possible drivers of inflation in China. The authors conclude that while monetary expansion and expectation on inflation both have significant, driving impacts on China＇s inflation, rising labor costs have also become an important driver of China＇s rising prices. They argue that the solution to China＇s inflation problem lies not in currency policy and currency controls alone; it must be complemented by other policies that address the root causes of inflation.

Can Monetary Policy Undo Asset-freezing Sanctions?

This article investigates the macroeconomic consequences of foreign asset-freezing sanctions,a tool utilized by several Western nations amid recent geopolitical tensions.Specifically,it examines the repercussions of such sanctions on open economies,finding that they may experience a sharp recession and currency crisis.To quantify the impact,we develop a new Keynesian dynamic stochastic general equilibrium model with financial frictions and an asset-freezing channel for an open economy.We also calibrate our model to capture the unique structures of the Russian economy.The quantitative analysis of the model demonstrates that an abrupt asset-freezing sanction would lead to large output losses and high inflation increases.Our counterfactual examination reveals that higher elasticity of import substitution and lower elasticity of export substitution could alleviate the impact of foreign sanctions,whereas more aggressive monetary policy may have positive but limited stabilization effects.Notably,the monetary authority must navigate a trade-off between stabilizing output and managing inflation resulting from the cash-in-advance channel.

Productivity Shocks and Monetary Policy in a Two-Country Model

In this paper, we examine the effects of foreign productivity shocks on monetary policy in a symmetric open economy. Our two-country model incorporates the New Keynesian features of price stickiness and monopolistic competition based on the cost channel of Ravenna and Walsh （2006）. In particular, in response to asymmetric productivity shocks, firms in one country achieve a more efficient level of production than those in another economy. Because the terms of trade are directly affected by changes in both economies＇ output levels, international trade creates a transmission channel for inflation dynamics in which a deflationary spiral in foreign producer prices reduces domestic output. When there is a decline in economic activity, the monetary authority should react to this adverse situation by lowering the key interest rate. The impulse response function from the model shows that a productivity shock can cause a real depreciation of the exchange rate when economies are closely integrated through international trade.