Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/144818 
Authors: 
Year of Publication: 
2016
Series/Report no.: 
Working Paper No. 72/2016
Publisher: 
Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE), Berlin
Abstract: 
In his letter to US President Franklin D. Roosevelt Keynes (1933) wrote about "the technique of recovery itself". An increase in output is brought about by an increase in purchasing power, Keynes argues, which can come from three sectors: households, firms and government. Using the IS/MY macroeconomic model developed by Ehnts (2014), which features sectoral balances and endogenous money, the situation of some euro zone members is examined with a focus on the three techniques of recovery: increases in debt of the respective sectors as defined by Keynes. A fourth technique, an increase in spending by the rest of the world, is added. The conclusion is that the policy recommendation given by Keynes in his letter also holds for the euro zone at present: a rise in debt-financed government expenditure. Some reform at the institutional level in Europe would enable "the technique of recovery" to work via the TARGET2 payment system, which is organized along Keynes' International Clearing Union proposal and a solid foundation to build on.
Subjects: 
deficit spending
fiscal policy
sectoral balances
Keynes
Keynesian economics
JEL: 
E12
E32
E62
Document Type: 
Working Paper

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