Wage policy in an open economy kalecki-kaldor model: a simulation study

ManuscriptThis paper discusses a Post?Keynesian model of income, production, and trade. The one?country, one?sector model features Kaleckian investment demand, Kaldorian productivity and a labor market module based on a wage?price spiral. The model is first presented for a closed economy with exogenous real wages; second, for a closed economy with endogenous real wages;third, for an economy open to trade with endogenous real wages. Simulations with different calibrations show key characteristics of the model. Monte Carlo simulations over reasonable parameter ranges shed some light on the effectiveness of wage policies in open economies

Labor productivity and energy use in a three sector model: an application to Egypt

ManuscriptThis paper presents a model of a developing economy with three sectors| industry, agriculture, and energy. Industry and energy are assumed to be demand- constrained, but agriculture supply-constrained. The model highlights (a) structural transformation, through labor transfer from agriculture to industry, (b) inflation, driven by the interaction of demand and the supply constraint in agriculture, and (c) the link between energy use and labor productivity. Employing a Kaldor-Verdoorn productivity rule in industry augmented with energy intensity|energy per unit of labor|as an argument, we emphasize that labor productivity growth is driven by energy intensity rather than energy productivity growth. As a consequence, emissions reduction without North-South technology transfer and financial assistance costs growth

Structural transformation in China and India: the role of macroeconomic policies

ManuscriptThis paper explores macroeconomic policies that can sustain structural change in China and India. A two-sector open-economy model with endogenous productivity growth, demand driven output and income distribution as an important determinant of economic activity is calibrated to a 2000 SAM for China and a 1999/2000 SAM for India. Short-run analysis concerns temporary equilibria for output, productivity and employment growth rates in the formal sector. In the long-run, the model allows for multiple equilibria which can describe cases of (a) underdevelopment and structural heterogeneity or (b) sustained growth and development. Several simulation exercises are conducted. Specifically, we consider how changes in investment, wages, labor productivity trend and a depreciation of currency affect the macroeconomy and job creation in the formal sector

A global model of recovery and rebalancing

pre-printThis paper presents an investigation of global recovery from the great recession and rebalancing of global external imbalances, using a global model of sixteen countries and composite regions. The model applies to the short run, and only to the real side. Key features are demand-driven output determination, pro-cyclical aggregate labor productivity, imperfect competition in product markets and simple bargaining in non-clearing labor markets, which together determine the functional distribution of income. Trade is modeled in a bilateral import matrix; particular attention is paid to international adjustment. Simulation results suggest that early exit from fiscal support threatens a fragile recovery. Further, domestic demand expansion and revaluation in real terms in surplus countries are necessary for rebalancing, and a variety of measures can be employed to achieve these goals

Redistribution in a neo-Kaleckian two-country model

pre-printWe investigate the interaction between demand-driven growth and income distribution in open economies, by combining expenditure-switching and demand spillover effects in a neo-Kaleckian two country model. First, we specify elasticities of wage share and real exchange rate to the money wage relative to labor productivity, in order to precisely describe the distributive pass{through from money wages to the labor share and the real exchange rate. Second, we analyze the demand effects of an increase in the money wage for given labor productivity (a redistribution toward labor) in both Home and Foreign country, as well as globally. We derive closed form results for two identical countries. These results indicate that redistribution towards labor at Home: (i) always increases growth globally if Home is wage-led, but can lead to lower growth at Home relative to Foreign; (ii) will always imply lower growth at Home relative to Foreign if Home is prot{led, but can still be growth-enhancing at Home. Thus, to the extent that countries are concerned with their relative economic performance, a fallacy of com-position can emerge. Numerical simulations suggest that these fallacies could indeed occur. As a consequence, "returns to coordination" over international labor policies might be substantial

Rebalancing through expenditure and price changes

pre-printThis paper puts forth a Neo-Kaleckian open economy model of two countries in order to investigate adjustment of US-China external imbalances. First, a stylized fixed mark-up model is presented, and discussed based on graphical analysis. Second, we present estimates of bilateral income and price elasticities of imports. Third, we employ the model for simulation analysis. Specifically, we randomly distribute expenditure change across government, investment and imports and calculate the exchange rate change necessary to lead to an equal change in the bilateral external imbalance. Doing so repeatedly allows to estimate probability distributions of endogenous variable changes