Dynamic Modeling, Empirical Macroeconomics, and Finance: Essays in Honor of Willi Semmler PDF
Preview Dynamic Modeling, Empirical Macroeconomics, and Finance: Essays in Honor of Willi Semmler
Lucas Bernard · Unurjargal Nyambuu Editors Dynamic Modeling, Empirical Macroeconomics, and Finance Essays in Honor of Willi Semmler Dynamic Modeling, Empirical Macroeconomics, and Finance PencilPortraitofWilliSemmlerbytheAnglo-FrenchartistAlexiaCarr, whoisalsoasculptor,anoperasinger,andanactress. Lucas Bernard • Unurjargal Nyambuu Editors Dynamic Modeling, Empirical Macroeconomics, and Finance Essays in Honor of Willi Semmler 123 Editors LucasBernard UnurjargalNyambuu Chairman ProfessorofEconomics DepartmentofBusiness DepartmentofSocialScience TheNewYorkCityCollegeofTechnology TheNewYorkCityCollegeofTechnology TheCityUniversityofNewYork TheCityUniversityofNewYork Brooklyn,NY Brooklyn,NY USA USA ISBN978-3-319-39885-3 ISBN978-3-319-39887-7 (eBook) DOI10.1007/978-3-319-39887-7 LibraryofCongressControlNumber:2016954240 ©SpringerInternationalPublishingSwitzerland2016 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof thematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthorsandtheeditorsaresafetoassumethattheadviceandinformationinthisbook arebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade. Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAGSwitzerland Foreword The 25 years from 1948 to 1973 were pretty good for middle-class and even poorhouseholdsin the advancedworld.Employmentwashigh,inflationwas low, productivity grew faster than ever, and real wages grew along with it. Innovation wasstrongandnewsectorsopenedupeverywhere,andthepublicsectorwasmore fullyfundedthaneverbefore.ThiswastheKeynesianera.Governments—evenso- calledconservativeones,asintheUK—explicitlyadoptedKeynesianpoliciesand supported the developmentof econometric models that could help to design their interventionistpolicies.(RoyHarrodwasanadvisortoHaroldMacmillan.) Since then, there has been a move away from interventionist policy and from econometric modeling. The models could not deal with the oil shocks, nor could they handle or explain “stagflation.” And the political climate changed, first following the oil shocks and then with the election of Reagan and Thatcher. In the resulting confusion, the simplicities of Friedmanesque monetarism took flight and lit up the skies. By the time Keynesians had got their act together to shoot downmonetarism,ithadbeenreplaced,orsupplemented,bynewclassicalthinking, togetherwithrealbusinesscycles,alldrapedinrationalexpectations. Whatfollowedwasanerathatmightbestbedescribedasideologicalargument over how an idealized (and therefore unrealistic) economy should work. New classicals, new Keynesians, and real business cycle theorists—all taking rational expectationsseriously—offeredaccountsofhowaneconomybasedonunrealistic, sometimes impossible, assumptions would move toward an equilibrium or end up cycling in an equilibrium path in spite of the all-too-evident fact that actual economies like the USA or the UK were regularly exhibiting features wholly inconsistent with equilibrium and behaving in ways contrary to the models. Post- Keynesians and the various schools of Marxian and other heterodox economists, however,weresimplyignored. Keynes,however,wasnotignored;hewasvilified.Hewasnotarealeconomist, accordingtoLucas.Norealeconomistundertheageof40takesKeynesseriously anymore,itwassaid.Asfor“involuntaryunemployment,”Lucasintoned,speaking excathedra,“itwasnotafacttobeexplained,itwasahypothesis,offeredtoexplain v vi Foreword arealphenomenon,thevariationinactuallevelsofemployment.”Therewasn’teven aKeynesianproblemanymore.1 Sofromabout1980tothecrashof2007–2008,therewasageneralatmosphere unfriendlytonewresearchinmacroeconomics—unlessitwasdesignedtoshowthat macro-policieswereineffectiveordamaging.Showingthatinterventionistpolicies were“ineffective”wasaparticularlycommonargument,anditwasoftenbasedona demonstrationthatthemultiplierwasminisculeornonexistentoroffsetbymonetary developments.Andofcourse,therewasthecrowding-outstory,andtheeffectofan expansionistinterventiononinterestrates,underminingtheexpansion. TheseissuesgobacktothebeginningofKeynesiananalysis,butworkonthem hadlargelystagnatedorbecomerepetitive.WilliSemmlerandhisassociateshave now developed new methods and new techniques to carry forward the work that hadbegunearlyintheKeynesianerabuthadbecomestagnantandunimaginative. For example, they show not only that multipliersare differentwhen the economy is expanding and when it is contracting, they have worked out how to calculate differentbut related multipliers for different states of the economy generally, and they examine how the multiplier interacts in these different states with monetary andfinancialvariables.2 This is pretty advanced, but it deals with issues that go back a long way right tothebeginning.ThestoryoftheKeynesianmultipliercanbedatedtoMay1929; Keynesgavetwotalks,oneinLondononMay28andanotherinLeicesterthenext day.BothweretalkssupportingLiberalcandidatesintheongoinggeneralelection, andinbothcasesKeyneswassupportingtheprogramofLloydGeorge(aprogram hewaslargelyresponsibleforwriting).Thisprogramcalledforthecreationoflarge- scalepublicworkstoofferemployment,puttingtheunemployedtoworkandgetting them off the dole. But the government with the support of the treasury objected. First, the only way to pay for such a programwould be to take away money now financingotherprojects,so there wouldbe essentiallyno netgain(crowdingout). And secondly, any such effort to expand would certainly drive up interest rates. All too familiar, for the liberalsto win, these argumentshad to be overcome(and essentiallythesameargumentsareouttheretoday). Keynes’snotesforthetalksthosetwodayscoverthedifferentwaysmoneycanbe foundorcreated,sothatnothinghastobedivertedfromfinancingongoingprojects, andheseekstoshowthatinterestratesdonothavetocomeunderpressuretorise. 1Lucas,atthetimeofhisNobelPrize,wastheonlyeconomisttohavetheword“macroeconomics” appear in his citation. The great macroeconomists, Hicks, Samuelson, Solow, Tobin, and many others,wereallcitedforotheraccomplishments,notfortheirworkinmacro.Forthemainstream establishment,realeconomicsisaboutscarcity,andhowcantherebescarcityifthereisinvoluntary unemployment?Macroisthewrongwaytogo. 2SeeStefanMittnikandWilliSemmler(2012):“RegimeDependenceoftheMultiplier,”Journal ofEconomicBehaviorandOrganisation,vol.83,no3:502–522.Concerningregime-dependent effectsofmonetarypolicy,seeCarlChiarella,PeterFlaschel,andWilliSemmler,“Reconstructing KeynesianMacroeconomics.” MacroeconomicActivity,Banking,andFinancialMarkets,vol.3, Routledge,2014. Foreword vii Wewouldcertainlyrephraseorrefinehisargumentstoday,buttherecanbenodoubt thatheopenedtheway.Williandhiscolleaguesofferusnotonlymodelsbutalso empiricalmethodstodemonstratethesepoints. Even more remarkable is the fact that Keynes sought to calculate the precise, numerical extent of the expansion in employment as the result of “secondary” spending: this is the multiplier and it is the first time that we have it as the sum of an infinite series. In his notebook, he wrote out an arithmetical formula for an infiniteseriesthatsummedtoafiniteamount.Thiswasthesecondaryemployment thatwouldresultfromremovinganunemployedworkerfromthedoleandputting him to work—thusdoublinghis spending and setting up the series of respending. Moreoverhethencalculatedthesavingsfromthedole,assecondaryworkerswere takenoffitandputtowork—thissavingscouldbepartofthefinancingofthepublic works. Keynesconsidersseveraldifferentpossibilitiesofleakages,essentiallydifferent states ofthe economy.In otherwritingsandin a letter to Harrod,hesuggeststhat these conditionsmight be stable for long enough to study but that over time they wouldmostlikelychange,thoughslowly.Herecommendedempiricalstudiesofthe multiplierin markedcontrastto his reactionto Jan Tinbergen’searly econometric modeling,whichhecriticizedverystronglyataboutthesametime. Keynes’s views on the likelihood that the multiplier might vary in value with the state of the economy seem to be an early version of the argument that James Duesenberry presented in the 1950s and 1960s. He proposed that the multiplier/accelerator mechanism in the upswing of the cycle would be different fromthatinthedownswing,andeverycyclewouldverylikelydifferinsomeways from every other. Duesenberryasserts this but doesn’tdemonstrate it nor does he presentmuchevidence.Buthemakesaplausiblecaseforlookingintoit. ThisiswhatWilliandhiscoauthorshavedone.Theyhavenotonlystudiedand answeredthesequestions,buttheyhavedevelopedempiricalmethodsofanalysisto make their studies precise and workable. They have movedthe Keynesian project forwardafterdecadesofstagnation. EdwardJ.Nell Contents TheoryandPracticeinaSensibleEconomicPolicyMix: AGlanceatWilliSemmler’ContributionstoEmpirical Macroeconomics.................................................................. 1 AleksandrV.Gevorkyan Iran’sNuclearProgramandtheWest’sResponse:AGame TheoreticApproach.............................................................. 13 FranzWirlandYuriYegorov FromtheGreatDivergencetotheGreatConvergence ...................... 35 AskarAkaev BorrowingConstraintsandMonetaryPolicy:TheInflation Tax-NetWorthChannel......................................................... 89 TizianaAssenzaandDomenicoDelliGatti Modeling Climate Change Effects on Renewable andNon-RenewableResources................................................. 121 AleksandrV.GevorkyanandArkadyGevorkyan A North-South Model with Technological Spillovers, EnvironmentalDegradationandStructuralChange ........................ 137 AntonBondarevandAlfredGreiner Foreign Exchange Volatility and its Implications for Macroeconomic Stability: An Empirical Study ofDevelopingEconomies........................................................ 163 UnurjargalNyambuu Keynes’MicroeconomicsofOutputandLaborMarkets.................... 183 DuncanK.Foley ix x Contents “Wavelet-Based”EarlyWarningSignalsofFinancialStress: AnApplicationtoIMF’sAE-FSI............................................... 195 MarcoGallegati,MauroGallegati,JamesB.Ramsey, andWilliSemmler Corporate Liquidity under Financial Constraints and MacroeconomicUncertainty.................................................... 221 DanielSamaanandImmoSchott MightTobinbeRight?........................................................... 261 EkkehardErnst Business Confidence and Macroeconomic Dynamics in a Nonlinear Two-Country Framework with Aggregate OpinionDynamics ............................................................... 289 MatthieuCharpe,CarlChiarella,PeterFlaschel, andChristianR.Proaño Self-FalsifyingProphecies....................................................... 311 RajivSethi AbouttheEditors ................................................................ 325
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