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51. Macroeconomic Update: Early Signs of Rise in Investment

Author:
Geetima Das Krishna and Rajiv Kumar
Publication Date:
07-2015
Content Type:
Special Report
Institution:
Centre for Policy Research, India
Abstract:
Economic recovery remains fragile on the back of a weak consumption demand. Sustained high growth will be achieved only with an upturn in the investment cycle. The government seems to have understood the importance of pump-priming the capex cycle directly through higher public capital expenditure and front loading the expenditure. While private investment remains muted due to stressed corporate balance sheets, weak external and domestic demand prospects and commercial banks’ cautious approach to expanding credit, there are some early signs that the private investment cycle is likely to turn around in the next six to nine months.
Topic:
Government, Economic growth, Banks, Investment, and Macroeconomics
Political Geography:
South Asia, India, and Asia

52. The Monetary Theory of Kalecki and Minsky

Author:
Jan Toporowski
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The monetary theory of Kalecki and Minsky is usually placed within the Post-Keynesian tradition, deriving from the monetary analysis of John Maynard Keynes. The paper argues that Kalecki and Minsky shared a common inheritance in Swedish and German monetary theory, rather than the Marshallian tradition. Thus the monetary analysis of Kalecki and Minsky emphasises the endogeneity of money through capitalist reproduction, rather than through the mechanisms connecting central bank money to credit creation in the banking system. This provides the link between the monetary theory of Kalecki and Minsky and modern circuit theory.
Topic:
Monetary Policy, Banks, Economic Theory, and Keynes
Political Geography:
Global Focus

53. A Theory of Capital Rationing

Author:
Jan Toporowski
Publication Date:
09-2010
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper revisits some of the issues originally put forward by the author as the theory of capital market inflation, in the book The End of Finance (Toporowski 2000). The paper makes much clearer the key assumptions and relationships between the operations of the capital market dominated by institutional investors, and the balance sheets of companies. In this way, it presents a theory of how macroeconomic dynamics may be affected by disequilibrium in the capital market. The first part of the paper examines the demand for new equity issues by institutional investors, namely insurance companies and pension funds. In the second part of the paper it is argued that the tendency of pension funds to mature may be a factor in forcing companies into debt and thus discouraging their investment and restricting their cash flow. The tendency towards forced indebtedness may be reinforced by an inelastic demand for capital by banks. The third part of the paper argues that the inelastic supply of capital in the capital market gives rise to processes of capital market inflation or deflation. The first of these may make banks more fragile. The second may contribute to deflationary processes in the macroeconomy. A fourth section argues that further instability is added by international capital market integration.
Topic:
Debt, Markets, Banks, and Investment
Political Geography:
Global Focus

54. The Macroeconomic Effects of External Pressures on Monetary Policy

Author:
Davide Debortoli and Ricardo Nunes
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Central banks, whether independent or not, may occasionally be subject to external pressures to change policy objectives. We analyze the optimal response of central banks to such pressures and the resulting macroeconomic consequences. We consider several alternative scenarios regarding policy ob- jectives, the degree of commitment and the timing of external pressures. The possibility to adopt “more liberal” objectives in the future increases current inflation through an accommodation effect. Simultaneously, the central bank tries to anchor inflation by promising to be even “more conservative” in the future. The immediate effect is an output contraction, the opposite of what the pressures to adopt “more liberal” objectives may be aiming. We also discuss the opposite case, where objectives may become “more conservative” in the future, which may be the relevant case for countries considering the adoption of inflation targeting.
Topic:
Finance, Banks, Inflation, and Central Bank
Political Geography:
Global Focus