New Keynesian Menu Cost Models

During the stagflation of ‘70s, the Keynesian System fell from favor in the academic circles while Monetarism and, in particular, New Classical Economics became widely spread. The years ‘80s witnessed implementation of economic policies in line with Monetarism and the New Classical School, but unemployment, far from being removed automatically, increased and recession deepened. Hence during this decade these two schools fell from favor in the academic circles and in the US academic circles a new school, New Keynesian economics began to take hold. The new Classicals had criticized the Keynesian System severely because its macro analysis had no micro foundations and its result, i.e. unemployment due to lack of demand was inconsistent with the result of full employment reached in the traditional microeconomics which was based on perfect competition. To meet this criticism of methodology, the New Keynesians went into microeconomics foundations of Keynesian macro analysis, but they rejected the relevance of traditional microeconomics and instead accepted imperfectly competitive markets and lack of coordination between markets. These conditions would lead to Keynesian unemployment in the short run, if not in the long run. This would be cured by the implementation of Keynesian monetary and fiscal policies. In their analysis and models, New Keynesians also accepted the Rational Expectations Hypothesis of the New Classicals, which meant that all decision makers, including workers, could estimate future price increases and other future conditions correctly.New Keynesians came up with many models explaining how Keynesian unemployment could arise under conditions of imperfect competition and also lack of coordination between markets. One such well-known model is the “Menu Costs Model” which was first advanced by Mankiw and also Akerlof and Yellen, and later developed by several other New Keynesian economists. The Menu Costs Model works with firms under imperfect market conditions facing a negative demand curve. Supposing a fall in demand occurs that would lead firms to cut down prices. But in order to decrease prices, the firm has to incur fixed costs called “menu costs” such as preparing new price lists, reaching this new price information to customers, etc. Hence if decreasing the price and thus increasing profits under new demand conditions does not meet these costs, the firm will choose to keep the price fixed and instead will decrease production and employment. This is demonstrated in our article both with the aid of partial analysis and geometry and also with the aid of general equilibrium analysis and mathematics. In conclusion, an evaluation and criticism of Menu Cost Model is offered. It is noted that the model neglects the fact that menu costs are incurred for once while profit loss due to keeping prices rigid continues over time. Hence, though the “Menu Costs Model” may be valid under certain conditions, its validity is limited. Therefore, we cannot explain prolonged recessions and depressions with the aid of only the “Menu Costs Model”.Keywords: New Keynesian Economics, New Keynesian Models, Menu Cost Models, Inflatio

Turkish Women in Agriculture

I would like to begin by presenting some basic statistics concerning the place of the agricultural sector in the Turkish economy.Turkey had a total population of 66,8 million in mid-2001 (est.) and a population growth rate of 1,51%. It is a young population with 41,5% in the age group 3 - 20. Rural population is 35%, urban population is 65%. An additional population of about 3,5 million lives abroad, of which about 3 million is in the European Union.Per capita income in 2000 was $2,693 [State Planning Organization (SPO) 2002 Program, p. 177]. This figure is corrected for the rise in foreign exchange rates following the economic crises in November 2000 and February 2001, after which the exchange rates were left to float and rose sharply.In the 5 years 1996-2000, the average yearly growth rate of GNP was about 3,9%, that of GDP 4,0%. It was about 3,9% for agriculture, 4% for industry, 4,6% for services.The share of agriculture in GDP in 2000 was 13,5%, of industry 28,3%, services 58,2% (all above figures from SPO, op. cit.).In 1999, crop area sown was 18,448 thousand hectares, crop area fallow 4900. In addition, vegetable gardens were 790, vineyards 530, orchards 1,404; olive groves 600 and forests 20,703 thousand hectares [State Institute of Statistics (SIS), 2000 Annual Statistics-, p. 272].In 2000, total civilian labor force was 22,029 thousand, total civilian employment was 20,578 thousand with 7,187 (34,9%) in agriculture, 3,733 (18,2%)in industry and 9,658 (46,9%) in services. Unemployed was 1,451 thousand (6,6%),under-employed 2,043 (7,0%), total unemployed and under-employed 3,494(13,6%) [SPO, 2002 Annual Program]. A comparison of sector shares in GDP and employment indicates that the value added per employment was about 4 times as big in industry as compared to agriculture; in services it was 3,2 times as big. This difference stems from a much higher level of capital usage and a much higher technological level in industry compared to agriculture. In addition, in agriculture we have considerable disguised unemployment as well as seasonal unemployment.Region is the least developed. But the population there is also fractional due to internal migration. The recent efforts to realize the "Southeastern Anatolian Project'', however, have given a new acceleration to the Southeast; though much of this project still remains to be completed

International Journal of Progressive Sciences and Technologies

Abstract. This chapter aims at comparing the major Islamic views on economy to previously experienced views such as socialist, fascist and capitalist attitudes. The role of government, interest rates, public and private property rights and regulations, implementation difficulties, market mechanism and financial management, wealth accumulation are the main areas of concern in this paper. This chapter is a short extract taken from the master thesis advised by F.Özlen Hiç “AN INQUIRY FOR THE VALIDITY OF EFFICIENT MARKET HYPOTHESIS IN DEVELOPED AND DEVELOPING COUNTRIES AND A COMPARATIVE ANALYSIS ON STRUCTURAL AND SOCIAL CHANGES IN ECONOMIC SYSTEMS SUGGESTED FOR IMPLEMENTATION” – 2020.Keywords. Islamic economics, wealth accumulation, capitalism, property rights, interest rate

What It Means to Be A New Classical Economist

Abstract – The New Classical School works with rational expectations and full flexibility of prices and wages in all markets. The concept of rational expectations hypothesis (REH) was first introduced by J.F. Muth (1961). Robert E.R. Lucas Jr. (1972) developed and popularized this hypothesis. Thomas Sargent, Neil Wallace, Robert Barro are other distinguished representatives of this school.What is important in the New Classical School is first of all the assumption of full flexibility of prices and wages. As a result of this assumption, all markets will reach perfect equilibrium, economy will automatically settle at the point of full employment. Unemployment will be voluntary which will be denoted as “natural rate of unemployment”.According to REH, on the other hand, all the economic agents have full knowledge and information about economic decisions – including government policies and their effects – and take into account their future expectations in a right way. In this case, the government policies which will be expected and known to everybody will be already taken into account and the decisions on prices and quantities are formed accordingly, thus prices are formed in a complex fashion. In this manner, efficiency of government policies neutralized. Hence, as much as Keynesian financial policies, monetarist monetary policies are ineffective as well. The only effective impact in economy seems to be “unexpected shocks” and accordingly “unexpected” or “shock”.New Classical School have had weight after 70s due to inflationary effects of the Vietnam War and the stagflation following 1973-1974 oil shock. Hence the economic conservatism both during Regan era in the United States and Thatcher era in Britain effected the policy implementations for a while. However, it was not possible to prevent inflation; on the contrary, unemployment reached a new and higher dimension. Therefore, once more but this time with more cautious approach, a mix Keynesian and Monetarist policy implementation was adopted. On one hand, radical fiscal policies were implemented in order to prevent or decrease the budgetary gaps, on the other hand, monetary policies were applied for fine-tuning of economy, however this fine-tuning was not in the form of fixing money supply in the long run as recommended by the Monetarists. These policies were particularly based on the Keynesian analysis taken up in a broader perspective; that is to say, monetary policies being more effective in recession periods rather than fiscal policies.Keywords – New Classical School; New Classical Macroeconomics, New Classical Asuumptions, New Classical Policy Recommendations

İktisadi Ve İdari Bilimlerde Akademik Çalışmalar, UAKB

Genel olarak tarım sektöründe diğer sektörlere nazaran devlet müdahalesine daha fazla gereksinim duyulmaktadır. Bu bakımdan tarım politikalarının temel amaçları; üreticilerin gelirini artırmak, kırsal kesimin yaşam standartını iyileştirmek, gelir dağılımını adil hale getirmek, tüketicileri fiyat artışlarına karşı korumak, rekabeti yüksek tarım ürünlerini yetiştirmek, modern üretim teknikleriyle uygun üretim yaparak ürün kaybını asgari seviyeye indirmek, buzhane ve benzeri fiziki mekânları oluşturmak, mevsimsel etkileri minimuma indirecek üretim teknikleri geliştirmek, etkin ve iyi tohum geliştirmek, gübre üretimi yaparak dışa bağımlılığı azaltmak, üretim maliyetlerini düşürmek, üreticilerin üretimlerini doğrudan pazarlara ulaştırmasını sağlayarak aradaki komisyoncuları devre dışı bırakmak ve bu şekilde fahiş fiyat artışlarını önleyerek enflasyon rakamlarını düşürmek olarak özetlenebilir

Academic Studies in Social, Human and Administrive Sciences

In this Chapter, we will first review the historical developments leading to the birth of Post-Keynesian Economics and then give the developments of Post-Keynesian Economics in terms of their assumptions and methodology, later on we will discuss the current state of Post-Keynesian Economics.Post-Keynesian school of macroeconomics was developed in the mid ‘80s as a reaction not only against New Classicals but also against New Keynesian economists because the assumptions and hence conclusions of the latter were not deemed Keynesian enough. Keynesian Economics was mainstream both in the USA and Europe, both in academic circles and in the field of implementation by governments and Central Banks from 1936 and WW II up to the ‘70s. The debate that took place during this period between Neo-Keynesian economists in the USA and Neo-Classical economists that led to the Neo-Classical Synthesis and the reaction of Orthodox Keynesian Economists in the UK to Neo-Classical Synthesis will be referred to later. Keynesian economics here embraces both Neo-Keynesian economists and Orthodox Keynesian economists as mainstream against the Traditional Classical and the Neo-Classical system.Developments in the ‘80s were called “Counter Revolution”, reversing what Lawrence Klein in 1961 had called “Keynesian Revolution”. Though M. Friedman had laid the foundations of Monetarism during the fifties it had remained a minority voice then and had become widespread also during the ‘70s in the US academic circles; it also found adherents in the UK and Europe. This event was called the “Monetarist Counter-Revolution” by Monetarists. Thus, during the ‘70s though Keynesian macroeconomic policies were implemented low-key, Keynesian economics was on the demise and no more mainstream in the academic circles.During the decade ‘80s economic policies began to be pursued that were in line with New Classicals and particularly Monetarists both in the USA and Europe by conservative governments that had come to power, foremost Ronald Reagan during 1981-89 and Margaret Thatcher during 1979-87.Thus, government budgets began to shrink, and privatization programs were implemented in Europe. Despite the presence of high unemployment rates “tight money policy” was implemented. It assumed that the economy would automatically come to full-employment equilibrium (AFNE), or using the concept first introduced by Friedman, at the point of natural rate of unemployment (NRU), meaning automatic NRU equilibrium (ANRUE). To achieve price stability along with ANRUE, therefore, Keynesian policies of raising aggregate demand, including monetary expansion had to be discarded, and Monetarist tight money policy implemented instead. But the proposition of ANRUE claimed by both New Classicals and Monetarists did not materialize; unemployment persisted and even increased during the ‘80s. The failure of New Classical and Monetarist policies made Keynesianism mainstream once again in the academic circles and this movement was called “Counter Counter-Revolution” (Blinder 1988, Mankiw, 1990).But criticisms coming from both Monetarists and particularly New Classicals forced fundamental methodological and assumptive changes in Keynesianism since the ‘80s. The school that emerged in the USA is called “New Keynesian Economics”. A brief review of these changes is highlighted below. But we should take the criticisms coming from Monetarists first both because of historical and methodological reasons.Friedman used Keynesian concepts and basically Keynesian macroeconomic analysis but with different elasticities and assumptions leading to the Classical conclusion AFNE, or in Friedman’s terms, ANRUE

New Keynesian Hysteresis Models

During the stagflation of „70s, the Keynesian System fell from favor in the academic circles while Monetarism and, in particular, New Classical Economics became widely spread. The years „80s witnessed implementation of economic policies in line with Monetarism and the New Classical School, but unemployment, far from being removed automatically, increased and recession deepened.Hence during this decade these two schools fell from favor in the academic circles and in the US academic circles a new school, New Keynesian economics began to take hold.The new Classicals had criticized the Keynesian System severely because its macro analysis had no micro foundations and its result, i.e. unemployment due to lack of demand was inconsistent with the result of full employment reached in the traditional microeconomics which was based on perfect competition. To meet this criticism of methodology, the New Keynesians went into microeconomics foundations of Keynesian macro analysis, but they rejected the relevance of traditional microeconomics and instead accepted imperfectly competitive markets and lack of coordination between markets. These conditions would lead to Keynesian unemployment in the short run, if not in the long run. This would be cured by the implementation of Keynesian monetary and fiscal policies.In their analysis and models, New Keynesians also accepted the Rational Expectations Hypothesis of the New Classicals, which meant that all decision makers, including workers, could estimate future price increases and other future conditions correctly.According to the Hysteresis Models, when economy comes to unemployment equilibrium (UNE) once, due to several factors it cannot restore to automatic natural rate of employment equilibrium (ANRUE). In brief, as most of New Classicals agree, these models do not accept automatic NRU balance in the LR. They are also called as “Super-Keynesian” models. As is seen, there are several New Keynesian models determining and explaining inflexibilities that stem from IC in prices and wages, lack of coordination etc. For example, even Mankiw and Romer‟s selection among these models consists of 2 volumes (880 pages in total).Keywords-New Keynesian Economics, New Keynesian Models, Hysteresis Models, Membership Model, Insider-Outsider Model, Capital Scrapping, The Change of Capital, Employment Duration

Modern Macroeconomic Schools: Their Methodology, Assumptions, Conclusions, Policy Recommendations and Relevance

We attempt to make a comparative evaluation of modern macroeconomic schools: Monetarism and New Classical School based on the ClassicalSystem that envisage automatic full employment or natural rate of unemployment (NRU) equilibrium (AFNE or ANRUE) vs. New Keynesian and PostKeynesian Economics based on the Keynesian System which gives unemployment equilibrium (UNE) or non-automatic NRU equilibrium (NANRUE) due to insufficiency of aggregate demand. In order to determine which school is relevant, first the basic assumptions of these systems are compared: i) rational vs. adjusted vs. heterogeneous expectations, ii) existence of perfect competition in all markets leading to flexibility of prices and wages vs. imperfect competition giving rise to rigidities, and iii) presence or lack of coordination between markets. In the final phase of our evaluations the performance of the developed economies are surveyed to establish whether we meet with AFNE or ANRUE or else UNE or NANRUE; and whether policy prescriptions devised by respective schools solve or alleviate the problem at hand when implemented. Our investigations point out that New Keynesian and Post-Keynesian schools are more relevant compared to Monetarism and New Classical School. The choice between New Keynesian and Post-Keynesian Economics, however, is more difficult to make although New Keynesian Economics seems more widespread than Post-Keynesian Economics. Objectively, Post-Keynesian assumptions seem more realistic; normatively, however, New Keynesian stands seems more fit to the present day move towards globalization.Keywords: Modern Macroeconomic Schools, (Neo-)Classical System, Keynesian System, New Keynesian Economics, Post-Keynesian School, Monetarism, New Classical Schoo