A New Keynesian Triangle Phillips Curve

We propose a solution to address the observed negative sign on the marginal cost variable in new Keynesian Phillips curve estimations. Our solution is based on an elaborate specification of the cost function faced by firms and the formulation of a reduced-form production function which is characterised by non-linear input-output relations. The resultant Phillips curve features the standard hybrid expectational term, labour share, output gap, speed-limit effects and supply shock variables. In general, GMM estimations of the model for developed and emerging markets yield a positive and significant coefficient on the labour share and the output gap. We conclude that supply shock variables are essential to the empirical validity of the cost-based Phillips curve

The microfoundations of the Keynesian wage-price spiral

We derive the backward-looking Keynesian wage-price spiral from micro-foundations. The optimal price Phillips curve features one lag of price inflation, the lag of the labour share, excess demand pressure, speed-limit effects and supply shocks. The wage Phillips curve features current and lagged price inflation, excess demand pressure up to the second lag, and the lag of nominal wage inflation. We estimate this model for six developed and emerging market economies and find that the model fits the data well. In general, nominal wages are more flexible than prices with respect to demand pressure. The baseline model rejects the inclusion of supply shocks and indexation of wages in developed economies and some emerging markets

Inflation dynamics and the cost channel in emerging markets

We investigate inflation dynamics and the presence of the cost channel in ten emerging markets since the 1990's from the new Keynesian and triangle Phillips curve perspectives. A negative sign on the output gap is a common finding in new Keynesian specifications. This problem may be addressed by taking into account the endogeneity of the nominal interest rate in the instrument set of GMM estimations. We confirm substantial and significant backward-looking behavior in the inflation process of emerging markets, but its size is not robust to specification in some economies. In almost all the triangle model estimations, except for Hungary, the output gap exhibits the correct sign. Except for Mexico, there is no evidence of the cost channel in emerging market economies. The cost channel is not robust to the endogeneity of the nominal interest rate and to the specification of the Phillips curve

Capital In the 21st Century: A Review

This paper reviews Thomas Piketty's Capital in the Twenty-First Century. Piketty's Capital seeks to bring the issue of inequality back to the centre of social analysis and to encourage discussion about the evolution of wealth and inequality with a view to inform policy. The book uses data stretching as far back as the 1700's. The main thesis of the book is that capitalism automatically generates inequality and wealth concentration since the rate of return on capital always exceeds the growth rate of income. To resolve this problem, the book proposes a progressive tax on wealth and income. I show that Piketty's book is based on a misunderstanding of classical political economy, particularly Marx. Piketty's view of the development and phases of capitalism is inadequate. His tax proposals, though progressive, will not resolve the inequality problem. Lastly, his conclusion that modern economic growth made it possible to avoid the Marxist apocalypse is not borne out by his data

Traditional Inflation Dynamics

We derive a traditional Phillips curve under the assumption that firms optimize their prices in the context where a fraction of their output is contracted on previous prices, and where they face potential losses and gains from such contracts. Our derivation delivers an augmented exact specification that is of an accelerationist type. Specifically, our baseline TPC features one lag of inflation and the labour share, two lags of the output gap and one lag of supply shocks. With rule-of-thumb behaviour considered, our traditional Phillips curve admits higher lags of these variables. We estimate these traditional Phillips curves for six developed and five emerging market economies and find that the degree of price rigidity is significant and has the correct sign. We conclude that this optimization-based traditional Phillips curve is a credible rival to its forward-looking new Keynesian counterpart

Profitability and Crisis in the South African Economy

Based on new quarterly estimates of the general rate of profit over 1960-2016, this paper shows that the South African economy experienced two phase changes in the pace and rhythm of capital accumulation. The rate of profit exhibits a cyclical tendency to fall, mainly driven by the tendency of capital intensity to rise. The economy experienced a crisis of absolute overproduction of capital in the mid-1980s. This crisis was not only characterised by stagnation in the mass of profits, it was also characterised by a halt in capital accumulation. Thereafter, the rate of profit recovered primarily because of the fall in the capital-output ratio but it failed to reach the levels seen in the 1970's. We estimate that in 2012, the South African economy entered a new and on-going crisis of overproduction of capital characterised by stagnant profits and prolonged overaccumulation, which makes it impossible for economic growth to recover

Inflation dynamics and the cost channel in emerging markets

We investigate inflation dynamics and the presence of the cost channel in ten emerging markets since the 1990's from the new Keynesian and triangle Phillips curve perspectives. A negative sign on the output gap is a common finding in new Keynesian specifications. This problem may be addressed by taking into account the endogeneity of the nominal interest rate in the instrument set of GMM estimations. We confirm substantial and significant backward-looking behavior in the inflation process of emerging markets, but its size is not robust to specification in some economies. In almost all the triangle model estimations, except for Hungary, the output gap exhibits the correct sign. Except for Mexico, there is no evidence of the cost channel in emerging market economies. The cost channel is not robust to the endogeneity of the nominal interest rate and to the specification of the Phillips curve

A New Keynesian Triangle Phillips Curve

We propose a solution to address the observed negative sign on the marginal cost variable in new Keynesian Phillips curve estimations. Our solution is based on an elaborate specification of the cost function faced by firms and the formulation of a reduced-form production function which is characterised by non-linear input-output relations. The resultant Phillips curve features the standard hybrid expectational term, labour share, output gap, speed-limit effects and supply shock variables. In general, GMM estimations of the model for developed and emerging markets yield a positive and significant coefficient on the labour share and the output gap. We conclude that supply shock variables are essential to the empirical validity of the cost-based Phillips curve

Capital In the 21st Century: A Review

This paper reviews Thomas Piketty's Capital in the Twenty-First Century. Piketty's Capital seeks to bring the issue of inequality back to the centre of social analysis and to encourage discussion about the evolution of wealth and inequality with a view to inform policy. The book uses data stretching as far back as the 1700's. The main thesis of the book is that capitalism automatically generates inequality and wealth concentration since the rate of return on capital always exceeds the growth rate of income. To resolve this problem, the book proposes a progressive tax on wealth and income. I show that Piketty's book is based on a misunderstanding of classical political economy, particularly Marx. Piketty's view of the development and phases of capitalism is inadequate. His tax proposals, though progressive, will not resolve the inequality problem. Lastly, his conclusion that modern economic growth made it possible to avoid the Marxist apocalypse is not borne out by his data

Profitability and Crisis in the South African Economy

Based on new quarterly estimates of the general rate of profit over 1960-2016, this paper shows that the South African economy experienced two phase changes in the pace and rhythm of capital accumulation. The rate of profit exhibits a cyclical tendency to fall, mainly driven by the tendency of capital intensity to rise. The economy experienced a crisis of absolute overproduction of capital in the mid-1980s. This crisis was not only characterised by stagnation in the mass of profits, it was also characterised by a halt in capital accumulation. Thereafter, the rate of profit recovered primarily because of the fall in the capital-output ratio but it failed to reach the levels seen in the 1970's. We estimate that in 2012, the South African economy entered a new and on-going crisis of overproduction of capital characterised by stagnant profits and prolonged overaccumulation, which makes it impossible for economic growth to recover