towards a coordinationist paradigm for macroeconomics - the … · 26/06/2014 · » production:...
TRANSCRIPT
![Page 1: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/1.jpg)
1 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Center of Applied Economic Research Münster CAWM-Kolloquium | Münster, 26 June 2014
Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Prof. Dr. Stefan Kooths Kiel Institute for the World Economy, Forecasting Center and Office Berlin Business and Information Technology School (BiTS), Campus Berlin
![Page 2: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/2.jpg)
2 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
The Kiel Institute for the World Economy (established 1914)
![Page 3: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/3.jpg)
3 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Outline
Market process-oriented microfoundations » What microfoundations?
» Why market process-oriented?
Contribution to methodological diversity (paradigmatic talk)
Capital, interest, and money » Production: Capital-based and consumption-driven
» Interest: Pure Time Preference and Loanable Funds
» Money: The ultra-pervasive good
Role of time in macroeconomics (intertemporal links)
Applications and research » Linking financial/monetary sphere and real economy
» Production possibilities, path-dependencies, and crises
» Global perspective and top-down-approach
Towards a coordinationist paradigm of macroeconomics
![Page 4: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/4.jpg)
4 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Outline
Market process-oriented microfoundations » What microfoundations?
» Why market process-oriented?
Contribution to methodological diversity (paradigmatic talk)
Capital, money, and interest » Production: Capital-based and consumption-driven
» Interest: Pure Time Preference and Loanable Funds
» Money: The ultra-pervasive good
Role of time in macroeconomics (intertemporal links)
Applications and research » Linking financial/monetary sphere and real economy
» Production possibilities, path-dependencies, and crises
» Global perspective and top-down-approach
Towards a coordinationist paradigm of macroeconomics
![Page 5: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/5.jpg)
5 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Microfoundations for macroeconomics
One economic process » Micro level: Economic mechanisms and individual decisions
» Macro level
Mismatches on micro level show up as „imbalances“
Universal drivers (permeating into all micro markets)
Macroeconomics: Evidence for systematic misallocation of resources?
Universal (= pervasive) drivers » Money (medium of exchange)
» Interest (price of time)
» Capital (means for intertemporal coordination)
» Labor (most universal production factor)
» Constitutional framework (regulations, policy)
Systemic micro disruptions as macro symptoms
![Page 6: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/6.jpg)
6 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Market process view (1/2)
Disequilibrium approach » Menger/Hayek vs. Walras/Marshall tradition
» homo agens (HA) vs. homo oeconomicus (HO)
Role of entrepreneurs » Uncertainty: speculation, search, and discovery (HA as explorer)
» Universal arbitrageurs: investment as intertemporal arbitrage
Dynamics and time » Permanent adjustment process rather than sequence of equilibria
» Market system as feedback mechanism (ex-ante and ex-post prices)
» Time cannot pass without modifying knowledge (Hoppe)
![Page 7: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/7.jpg)
7 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Market process view (2/2)
Value theory » Subjectivist perspective
» Reverse value imputation (from ends to means)
Prices as knowledge surrogates » Deficiency of monetary calculation:
Distorted price structures vs. price level movements
» Non-neutrality of money (Cantillon effects matter)
Leaving the “evenly rotating economy” behind
![Page 8: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/8.jpg)
8 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Outline
Market process-oriented microfoundations » What microfoundations?
» Why market process-oriented?
Contribution to methodological diversity (paradigmatic talk)
Capital, money, and interest » Production: Capital-based and consumption-driven
» Interest: Pure Time Preference and Loanable Funds
» Money: The ultra-pervasive good
Role of time in macroeconomics (intertemporal links)
Applications and research » Linking financial/monetary sphere and real economy
» Production possibilities, path-dependencies, and crises
» Global perspective and top-down-approach
Towards a coordinationist paradigm of macroeconomics
![Page 9: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/9.jpg)
9 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
“Final aggregate demand”: No demand and not all of it is final
Intermediate consumption (production structure)
Source/Input (not: supply) Use/Output (not: demand)
Goods and services account for period t
Domestic value-added
Imports
Intermediate consumption (production structure)
Final consumption (exclusive source of value)
Domestic capital formation
Exports
Capital formation abroad
„Final“ use of domestic production (only with respect to period t)
![Page 10: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/10.jpg)
10 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Production as a time consuming, multi-stage process
Capital formation: intertemporal intermediate consumption
Pri
mar
y p
rod
uct
ion
fac
tors
(l
abo
r an
d n
atu
ral r
eso
urc
es)
t t-1 t-2 t-3 t-4 t-5 t-6
Co
nsu
mab
le o
utp
ut
(fir
st-o
rde
r go
od
s)
Early stages (higher-order goods)
Production
Value imputation
Late stages (lower-order goods)
QC Q2 Q3 Q4 Q5 Q6 Q7
Capital stock as a structure
![Page 11: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/11.jpg)
11 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Capital
Capital as intentionally produced productive means … » … not a disembodied abstraction or homogenous aggregate
» … nor a self-perpetuating (“Knightian”) fund
Structure of heterogeneous goods » Limited convertibility and recombination losses
» Capital as a structural pattern (Lachmann)
Value dimension: » Ability to allow individuals to more readily realize their plans rather
than physical characteristics or physical history
» “Unfinished entrepreneurial plans” (Kirzner): Capital goods to be assessed in light of their usefulness to those plans
Missing link between micro and macro level (Skousen)
![Page 12: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/12.jpg)
12 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Value of the Spanish capital stock?
0
50
100
150
200
250
300
350
400
450
500
0
500
1000
1500
2000
2500
3000
3500
4000
1980 1985 1990 1995 2000 2005 2010
Net fixed capital formation (rhs)
Net capital stock (2005 prices)
Bn. Euro Bn. Euro
Source: AMECO Database.
No level shift
![Page 13: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/13.jpg)
13 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Spain: Invisible “ghost estates”
-6
-5
-4
-3
-2
-1
0
1
2
3
4
0
200
400
600
800
1000
1200
1980 1985 1990 1995 2000 2005 2010
Output gap
Potential output
Gross domestic product at 2005 market prices
Bn. Euro Percentage points
Source: European Commision, AMECO and CIRCA databases.
Positive contributions to potential growth
2006-2008 output gap nowcast/forecast:
-0.9 to -1.3 %
![Page 14: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/14.jpg)
14 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Production: The Hayekian triangle
Number of production stages/shape of the Hayekian triangle?
Pri
mar
y p
rod
uct
ion
fac
tors
(l
abo
r an
d n
atu
ral r
eso
urc
es)
t t-1 t-2 t-3 t-4 t-5 t-6
Co
nsu
mab
le o
utp
ut
(fir
st-o
rde
r go
od
s)
Early stages (higher-order goods)
Production
Late stages (lower-order goods)
QC Q2 Q3 Q4 Q5 Q6 Q7
![Page 15: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/15.jpg)
15 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Interest
Interest as a value phenomenon » Expression of time preference
» Price of future goods relative to present goods
» Discount rate interwoven in the entire price system
Capitalization theory (Fetter): Interest vs. price of capital » Productivity of capital reflects in price of capital goods
» Valuation of reproducible capital pushed backward to primary factors
» Price of capital = present value of future income streams
Interest and “roundaboutness of production” » Capital-intensity increases productivity of labor
» Choice of more roundabout production schemes depends on time preference
Pure time preference = market rate of interest?
![Page 16: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/16.jpg)
16 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Interest rate and market for loanable funds
LFD=I
LFS=S
i*
i
LF
![Page 17: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/17.jpg)
17 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Coordinating saving and investment
Saving » Saving up for something: Future demand, not a leakage
» Derived-demand and discount effect
M*V = P*(QC + Q2 + Q3 + Q4 + Q5 + Q6 + Q7)
Investment: Stage pattern matters (not volume alone)
Entrepreneurial challenge: bringing capital structure in line with pure time preference (intertemporal arbitrage)
derived-demand effect dominates
discount effect dominates
![Page 18: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/18.jpg)
18 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Capital-based macroeconomic framework (Garrison)
C
I i
LF
S
I
Production possibilities
frontier
Stages of production
Loanable funds
![Page 19: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/19.jpg)
19 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Interest rate and monetary policy
LFD=I
LFS=S
i*
i
LF
LFD=I+L
LFS=S+M
iM
![Page 20: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/20.jpg)
20 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Monetary policy
Multi-purpose weapon of “modern” economic policy
Generic target: Provision of a means of exchange
Other targets » Government financing
» Debt-monetization
» Boosting employment
» Business-cycle stabilization
» Systemic financial stability
» …
Monetary policy » Today: Key price of capitalist system manipulated by central banks
» Back to simple money supply rules?
What about Tinbergen?
![Page 21: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/21.jpg)
21 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Outline
Market process-oriented microfoundations » What microfoundations?
» Why market process-oriented?
Contribution to methodological diversity (paradigmatic talk)
Capital, money, and interest » Production: Capital-based and consumption-driven
» Interest: Pure Time Preference and Loanable Funds
» Money: The ultra-pervasive good
Role of time in macroeconomics (intertemporal links)
Applications and research » Linking financial/monetary sphere and real economy
» Production possibilities, path-dependencies, and crises
» Global perspective and top-down-approach
Towards a coordinationist paradigm of macroeconomics
![Page 22: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/22.jpg)
22 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Macroeconomics and terminology
Risks of macroeconomic misperceptions » Aggregating/averaging the problems away
(e.g. aggregate production function approach)
» Losing touch with microeconomic principles (e.g. key role of price mechanism)
» Over-interpreting national accounts concepts (e.g. identities tell nothing about causality or interdependency)
» Ignoring production structures (netting out intermediate consumption)
Language (terminology) and reasoning (theory) » Words can be misleading
» Wording matters
![Page 23: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/23.jpg)
23 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Applications (1/2)
Potential production/output gap estimations » Disaggregated approaches (marketable production possibilities)
» Market revaluations compared to national accounting data
Capital stock distortions as flipside of financial crisis » Repairing intertemporal discoordination problems
» New light on “austerity” debate
Non-neutrality of money/monetary policy » Monetary theory of the business cycle
(systematic investment failures due to excessive credit creation)
» “Capital gives money time to cause trouble” (Garrison)
» Scenario of globalizing monetary policy (multilateral swap agreements)
![Page 24: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/24.jpg)
24 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Applications (2/2)
International macroeconomic imbalances » Current account vs. financial account (capital vs. trade flows)
Global macroeconomic imbalances: The savings glut debate » Negative natural interest rates ahead?
» Need for more public debt to fill the global “investment gap”?
Global business cycle and regional/national impact » Top/down view:
Economic activity within countries derived from global dynamics
» National specialization and impact of capital restructuring
![Page 25: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/25.jpg)
25 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
A coordinationist macroeconomic paradigm
Key research and policy question: Evidence for hampered market coordination processes? » Coordination efficiency vs. macroeconomic management
» Important role of intertemporal coordination (capital and interest)
» Path-dependency of economic activity via capital allocation
Beyond the demand-side vs. supply-side controversy » Coordinationist macroeconomics is not a cheerleader for growth
» Intermediary step to linking macroeconomics and well-being
Overcoming the production-biased view (production serves consumption, not vice versa)
Putting consumers/households back in the center
Value theory remains key pillar (whether preferences are exogenous or endogenous)
![Page 26: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/26.jpg)
26 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
![Page 27: Towards a Coordinationist Paradigm for Macroeconomics - The … · 26/06/2014 · » Production: Capital-based and consumption-driven » Interest: Pure Time Preference and Loanable](https://reader034.vdocuments.mx/reader034/viewer/2022051912/60029ebd937ba47d95728d71/html5/thumbnails/27.jpg)
27 | KOOTHS: Towards a Coordinationist Paradigm for Macroeconomics - The Interplay of Money, Capital, and Interest
Saving and growth
Source: Garrison (2005)