Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/283216 
Authors: 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 1025
Publisher: 
Levy Economics Institute of Bard College, Annandale-on-Hudson, NY
Abstract: 
The purpose of public policy, expansionary or contractionary, is to encourage the expansion of income, output, and employment. Theory decides the nature and kind of policy, and the underlying mechanics that result in expansion. Keynes (1964) brings money and a monetary production economy to the forefront of economic analysis, yet in the General Theory, he is skeptical of the efficacy of monetary policy. This paper analyzes how prices of assets, liabilities, and commodities interact in response to unconventional monetary policy and fiscal policy (namely automatic stabilizers) to create conditions that stimulate private investment and economic activity. Modern economics, after accepting the need for intervention, tends to attempt to use monetary policy to steer aggregate demand. "Unconventional" monetary policy such as zero and negative interest rates, and quantitative easing have been instituted in an attempt to fight slumps and stimulate economic activity without increasing government deficits. In this paper, we point out- using Davidson's (1972) financial post-Keynesian framework-how unconventional monetary policy is not sufficient to create the conditions of backwardation that stimulate production. Finally, we explain how automatic stabilizers, using the Kalecki profits (price) equation, are the best avenue to create the conditions for backwardation that stimulate economic activity. We conclude, like Keynes, that fiscal policy is the reliable path to economic expansion.
Subjects: 
Financial post-Keynesian Theory
Unconventional Monetary Policy
Quantitative Easing
Automatic Stabilizers
backwardation
Contango
Tobin's Q
Paul Davidson
JEL: 
E12
E44
H50
E52
E62
Document Type: 
Working Paper

Files in This Item:
File
Size
390.8 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.