PSL Quarterly Review

Reinstating fiscal policy for normal times: Public investment and Public Jobs Programmes

Simone Gasperin — 2021-06-07

This paper upholds the classical Keynesian position that a laissez-faire market economy lacks a spontaneous tendency to full employment. Focusing on the UK case, it argues that monetary policy could not prevent the economic collapse of 2008-9 or achieve full recovery from the Great Recession that followed. The paper then outlines the case for fiscal policy to regain a permanent status of primacy in modern macroeconomic management, beyond the pandemic emergency. It distinguishes between public investment and automatic stabilisers, reducing discretionary actions to a minimum. It presents the case for re-empowering the State’spublic investment function and for reforming the system of automatic counter-cyclical stabilisers by means of public jobs programmes.

JEL codes:
E32, E52, E61, E62, E63, H54, J68

Keywords:
monetary policy, fiscal policy, public investment, job programmes

ECB quantitative easing, euro depreciation and supply chains: Industry-level estimates for Germany, Italy and Greece. New prospects for a Minskyan big bank?

Lucio Gobbi — 2021-06-07

We investigate how the 2014-2016 depreciation of the euro against the US dollar triggered a cascade effect on the European supply chains which reduced the current account imbalances among the EU member states. In particular, we analyze the specific case of Greece to verify whether the higher export demand towards the USA in the two main European exporting countries, Germany and Italy, increased the demand for Greek goods and services by the German and Italian economies. We employee a linear ARDL model which is able to track short- and long-term effects of the depreciation on the industries of Greece with respect to Germany, Italy and the USA for the period 2010-2016 using bilateral monthly data. The empirical findings show that the euro depreciation increased the integration between the German and Greek production structures in various industries representing more than 35% of the entire trade between the two countries.

JEL codes:

F31; F32

Keywords:
Industry trade; bounds testing; J-curve; Minskyan big bank

On two recent attempts to introduce animal spirits in macroeconomics: Heresy or enlightened church reform?

Teodoro Dario Togati — 2021-06-07

As noted by Alan Greenspan in 2008, one key flaw in standard models is that they treat animal spirits as a simple ‘add factor’ rather than as a structural one. This paper evaluates the extent to which two recent approaches placing the emphasis on animal spirits – namely Farmer’s ‘Neo-Paleo-Keynesian’ (NPK) project and Akerlof and Shiller’s behavioural approach – manage to overcome this flaw. By following the powerful religious metaphor introduced by Farmer, according to which general equilibrium theory underlying standard models should be regarded as a ‘church’, this paper stresses two points. First, animal spirits turn out to be devilish features that are inconsistent with the church’s commandments. Second, by trying to reconcile them with the church, these two approaches are unable to truly reform it as required by Greenspan; rather, they appear to be heretical stances that are forced to violate some fundamental dogmas of the church.

JEL codes:

E12, E13, E32

Keywords:
Animal spirits, general equilibrium, research programmes, Keynesian economics, macroeconomic models

Governance matters on non-performing loans: Evidence from emerging markets

Burak Byükoğlu — 2021-06-07

In this study, new determinants of non-performing loans (NPL) for the MSCI emerging countries were investigated. For this purpose, a new index was formed using the World Bank’s Worldwide Governance Indicator data from 2002 to 2018. To test the effect of governance on NPL, we used the GMM technique. As a robustness test for GMM results, we employed the DOLSMG technique. According to the results, NPL was affected negatively by the DOI: governance index. This result could be of interest to policymakers and regulators as a macroprudential policy tool.

JEL codes:

C51; G21; G2

Keywords:
Non-performing loans; Worldwide Governance Indicators