alberto, botta (2011): Fiscal policy, eurobonds and economic recovery: some heterodox policy recipes against financial instability and sovereign debt crisis.
Download (260Kb) | Preview
In this paper, we propose a simple post-Keynesian model on the linkages between the financial and real side of an economy. We show how, according to the Minskyan instability hypothesis, financial variables, credit availability and asset prices in particular, may feedback each other and affect economic activity, possibly giving rise to intrinsically unstable economic processes. Through these destabilizing mechanisms, we also explain why governments intervention in the aftermath of the 2007 financial meltdown has been largely useless to restore financial tranquility and economic growth, but transformed a private debt crisis into a sovereign debt one. The paper ends up by looking at the long-run and to the interaction between long-term growth potential and public debt sustainability. We explicitly consider the Euro-zone economic context and the difficulties several EU members currently face to simultaneously support economic recovery and consolidate fiscal imbalances. We stress that: (i) financial turbulences may trigger permanent reductions in long-term growth potential and unsustainable public debt dynamics; (ii) strong institutional discontinuity such as Eurobond issuances may prove to be the only way to restore growth and ensure long-run public debt sustainability.
|Item Type:||MPRA Paper|
|Original Title:||Fiscal policy, eurobonds and economic recovery: some heterodox policy recipes against financial instability and sovereign debt crisis.|
|English Title:||Fiscal Policy, Eurobonds and Economic Recovery: Some Heterodox Policy Recipes against Financial Instability and Sovereign Debt Crisis.|
|Keywords:||post-Keynesian models, financial instability, debt sustainability, Eurobonds|
|Subjects:||E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes; Keynesian; Post-Keynesian
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management; Sovereign Debt
|Depositing User:||alberto botta|
|Date Deposited:||04. Oct 2011 04:25|
|Last Modified:||11. Feb 2013 16:24|
Bank for International Settlements (2009) – An assessment of financial sector rescue programmes, BIS Paper 48, Basle, Switzerland.
Bertocco, G. (2006) – Some observations about the endogenous money theory, Insubria University Working Paper 2006/2.
Bertocco, G. (2009) – On Keynes’s criticism of the loanable fund theory, Insubria University Working Paper 2009/6.
Brancaccio, M. and Fontana, G. (2011) – The conventional views of the global crisis: A critical Assessment, in: Arestis, P., Sobreira, R., and Oreiro J.L. – The Financial crisis. Origins and Implications, Palgrave Miacmillan.
De Grauwe, P. (2011a) – Managing a fragile Euro-zone, CESifo Forum, vol. 12 (2), pp. 40 – 47.
De Grauwe, P. (2011b) – Balance budget fundamentalism, CEPS Commentary, Brussels.
De Grauwe, P. and Moesen, W. (2009) – Gains for All: A Proposal for a Common Euro Bond, Intereconomics, vol. 44 (3), pp. 132 – 135.
European Commission (2009) – The EU's response to support the real economy during the economic crisis: an overview of Member States' recovery measure, European Economy Occasional Paper 51/2009, Brussels.
European Commission (2010) – Fiscal stimulus and exit strategies in the EU: a model-based analysis, European Economy Occasional Paper 426/2010, Brussels.
Favero, C.A. and Missale, A. (2010) – EU public debt management and Eurobonds, European Parliament, Brussels.
Flaschel, P. (2000) – Keynes–Marx and Keynes–Wicksell models of monetary growth: a framework for future analysis, Review of Political Economy, 12 (4), pp. 453–468.
Fontana, G. and Setterfield, M. (2009) – Macroeconomics, Endogenous Money and the Contemporary Financial Crisis: A Teaching Model, International Journal of Pluralism and Economic Education, vol. 1 (1), pp. 130 – 147.
International Monetary Fund (2010) – World Economic Outlook 2010: Recovery, risk and rebalancing, Washington D.C., October 2010.
Issing, O. (2009) – Why a common Euro-zone bond isn’t such a good idea, Europe’s World,Center for Financial Studies White Paper n. 3, Brussels.
Kosters, W. (2009) – Common Eurobonds: No appropriated instrument, Intereconomics, vol. 44 (3), pp. 135 – 138.
Kregel, J. (2007) – The natural instability of financial markets, Levy Institute Working paper 523/2007.
Lavoie, M. (2006) – A Post-Keynesian amendment to the new consensus on monetary policy, Metroeconomica, vol. 57 (2), pp 165 – 192.
León-Ledesma, M. A. and Thirlwall, A. P. (2002) – The endogeneity of the natural rate of growth, Cambridge Journal of Economics, vol. 26 (4), pp. 441–59.
Mayer, T. (2009) – The case for a European Monetary Fund, Intereconomics, vol. 44 (3), pp. 138 – 141.
Minsky, H. (1982) – Can “It” happen again? Essays on instability and finance, M.E. Sharpe, New York.
Rodriguez, M. J. (2010) – The Euro-zone crisis and reforming economic governance, Foundations for European progressive studies, Brussels.
Romer, D. (2000) – Keynesian macroeconomics without the LM curve, Journal of Economic Perspective, vol. 14 (2), pp. 149 – 169.
Taylor, J. (1993) – Discretion versus policy rules in practice, Carnegie-Rochester Conference Series on Public Policy, vol. 39, pp. 195 – 214.
Wray, R. (2007) – Lessons from the subprime meltdown, Levy Institute Working paper 522/2007.
Available Versions of this Item
- Fiscal policy, eurobonds and economic recovery: some heterodox policy recipes against financial instability and sovereign debt crisis. (deposited 04. Oct 2011 04:25) [Currently Displayed]