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Finance, Post-Keynesian, Sraffian Theory

Paper Session

Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)

Manchester Grand Hyatt, Old Town A
Hosted By: Union for Radical Political Economics
  • Chair: Paul Cooney, Pontifical Catholic University of Ecuador (PUCE)

The Political Economy of Macro-Imbalances: Kalecki in a Small Open Econoomy

Fahd Ali
Information Technology University


Distributive impacts of deficit spending can go either way (workers or capitalists) depending on the available idle capacity and the level of “formalization” of the economy. Michal Kalecki had argued that crowding out type effects are nullified if the increase in effective demand (affected through deficit spending) results in the money (spent by the government) finding its way back to the banks. This can happen where a significant portion of the GDP is deposited in the banks, transactions are documented, and happen through formal channels. In developing economies with significant informal sectors or undocumented economy such channels are usually absent. Transaction are cash based and through non-banking channels. This also impacts the type of tax instruments governments can use to repay local debt. Deficit spending can increase effective demand but may be accompanied by a redistribution of wealth to the capitalists. Similarly, persistent trade deficits can cause inflationary pressures if balance of payment constraints are removed using devaluation or by using reserves. In both cases, inflationary pressure through exchange rate would reduce real wages and reduces workers’ consumption as well putting downward pressure on effective demand. Borrowing provides relief in the short-run but if export growth fails to catch up with imports and interest payments, the inflationary pressures return to exert downward pressure on domestic demand. My work in a Kaleckian macroeconomic framework with public finance traces the effects of these changes for a small open economy. It particularly aims at various policy handles available to the government to respond to economic challenges both in the short and the long run.

The Financial Structure Implicit in the Sraffa-Pasinetti Framework

Andres Cantillo
Kansas City Kansas Community College


The aim of the paper is twofold: (1) Show that there is a financial structure implicit in the Sraffa-Pasinetti input-output production model and (2) use this financial structure in order to connect the Sraffa-Pasinetti framework to Keynes’ inter-sector monetary analysis of production. The combination of these two perspectives offers a method for the joint study of the financial and productive structures of the economy. These objectives are achieved through the notion of the production commitment

A Three Class Predator-Prey Model with Financial Super-Predators: The Financial Profit Squeeze

Jonathan Goldstein
Bowdoin College


This paper extends Goodwin’s (1966) predator-prey model to include labor, industrial capitalists and financial capitalists. The purpose of the model is to explain the stylized facts of the Neoliberal Era and the Great Recession of 2008.
The behavioral equations capture a finance-dominated profit-led accumulation regime in the context of growing international competition (liberalization), defensive investment, low-road competitive strategies and a growing share of income appropriated by financiers.
The model has three state variables: labor’s share of income, financial capitalist share of income and the level of production in the macro economy. The differential equations characterizing each state variable respectively capture the balance of power between workers and industrial capitalists, the balance of power between financial capitalists vis a vis workers and industrial capitalists, and production dynamics based on a class theoretic expenditure-income model.
The solution for the model is based on numerical simulations that are based on parameter values derived from econometric estimation.
The tendency for an under-consumption crisis accompanied by either the deleveraging of debt or a constrained supply of credit is considered.

Shadow Banking and Financial Intermediation

Gokcer Ozgur
Gettysburg College


Shadow banking is a broad term representing non-bank lending, securitization and market-based financial system (or securities financing). In the past, these activities were called fringe banking and parallel banking. The main argument of this study is that shadow banking has gained a central intermediary role in the US financial system and it is no longer on the fringes, or parallel to other financial institutions. Through its role in lending, securitization, and especially short-term funding of long-term assets, shadow banking is influential on bank lending and funding conditions in general. Empirical results show that shadow banking amplifies bank lending cycles and it is influential on the determination of terms and risk spreads.
JEL Classifications
  • E1 - General Aggregative Models
  • E4 - Money and Interest Rates