March 6, 2024

Strategic Analysis | February 2024

Greece: Time to Reduce the Dependency on Imports

Dimitri B. Papadimitriou, Nikolaos Rodousakis, Giuliano Toshiro Yajima, and Gennaro Zezza

In this report, Institute President Dimitri B. Papadimitriou, Senior Scholar Gennaro Zezza, and Research Scholars Nikolaos Rodousakis and Giuliano Toshiro Yajima investigate the determinants of the recent performance of the Greek economy. Despite geopolitical instability from the continuing Ukraine-Russia and Israel-Gaza wars and higher-than-expected inflation rates, the country has managed to register the highest growth rates among eurozone member-states in 2021 and 2022. Yet the authors’ projections, based on 2023Q3 official statistics, show that there will be a deceleration of GDP growth in the upcoming two years, driven mainly by sluggish consumption coupled with the inability of the government to deploy NGEU funds and a significant loss of production due to climate damage from floods and fires.

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Working Paper No. 1039 | February 2024

Can the Philippines Attain 6.5–8 Percent Growth During 2023–28?An Assessment Based on the Estimation of the Balance-of-Payments–Constrained Growth Rate

Jesus Felipe and Manuel L. Albis

Research Associate Jesus Felipe and Manuel L. Albis expand the standard balance-of-payments–constrained (BOPC) growth rate model in three directions: (1) taking into account the separate contributions of exports in goods, exports in services, overseas remittances, and foreign direct investment (FDI) inflows; (2) using state–space estimation techniques to obtain time-varying parameters of the relevant coefficients; and (3) testing for the endogeneity of output in the import equation. They apply this framework to assess the feasibility of the target set by the new Philippine administration of President Marcos (elected in 2022) to attain an annual GDP growth rate of 6.5–8 percent during 2024–28. Their results indicate the Philippines must lift the constraints that impede a higher growth of exports.

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Working Paper No. 1038 | January 2024

Economic Possibilities for Our Grandchildren—90 Years Later

Jörg Bibow

In this paper, Research Associate Jörg Bibow revisits Keynes’s (1930) essay titled “The economic possibilities for our grandchildren.” Bibow discusses the three broader trends identified by Keynes that he expected would come to characterize the socio-economic evolution of advanced countries under individualistic capitalism: first, continued technological progress and capital accumulation as the main drivers of exponential growth in economic possibilities; second, a gradual general rebalancing of life choices away from work; and third, a change in the code of morals in societies approaching an envisioned stationary state of zero net capital accumulation in which mankind has solved its economic problem and enjoys a lifestyle predominantly framed by leisure rather than disutility-yielding work.

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Working Paper No. 1037 | January 2024

Markups, Profit Shares, and Cost-Push-Profit-Led Inflation

Michalis Nikiforos, Simon Grothe, and Jan David Weber

The post-pandemic surge in inflation was accompanied by a surge in the corporate share of profits. As a result, several economists and policy makers have given to it names such as “profit-led inflation” or “sellers’ inflation.” Research Scholar Michalis Nikiforos, Simon Grothe, and Jan David Weber discuss the extent to which profit-led inflation, as an explanation for the recent surge in inflation, is compatible with what we know about the price-setting behavior of firms, income distribution, and inflation.

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Working Paper No. 1036 | January 2024

The Estimation of Production Functions with Monetary Values

Jesus Felipe, John McCombie, and Aashish Mehta

Using simulated data from a cross-sectional Cobb-Douglas production function in physical terms from which they generate the corresponding series in monetary values, Research Associate Jesus Felipe, John McCombie, and Aashish Mehta show that the coefficients of labor and capital derived from the monetary series will be (a) biased relative to the elasticities by simultaneity and by the error that results from proxying physical output and capital with their monetary values; and (b) biased relative to the factor shares in value added as a result of a peculiar form of omitted variables bias. 

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Working Paper No. 1035 | January 2024

The Swedish Monetary System from a Balance Sheet Perspective

Dirk Ehnts, Jussi Ora

In this paper, Dirk Ehnts and Jussi Ora discuss the balance sheet mechanics of the Swedish government. They examine spending, government bond purchases, and tax payments. As long as the Swedish central bank, which is created through Swedish laws, supports the Swedish central government, it cannot run out of money. The Swedish government therefore plays a large role in the Swedish economy. It can and should target full employment and price stability, bringing to bear its fiscal power.

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Working Paper No. 1034 | December 2023

Euro Interest Rate Swap Yields: A GARCH Analysis

Tanweer Akram, Khawaja Mamun

Tanweer Akram and Khawaja Mamun model the month-over-month change in euro-denominated (EUR) long-term interest rate swap yields. The results of the estimated models of EUR swap yields of different maturity tenors extend the Keynesian view that the central bank’s monetary policy actions have a decisive influence on long-term government bond yields and long-term market interest rates, primarily through their effects on the current short-term interest rate.

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Research Scholar Fernando Rios-Avila was awarded the 2023 Editors' Prize from The Stata Journal. The aim of the prize is to reward contributions to the Stata community in respect of one or more outstanding articles published in the Journal in the previous three calendar years. Read more about Rios-Avila's contributions to Stata and accomplishments in the Prize Announcement.

Research Scholar Yeva Nersisyan appeared as a macroeconomics expert on CBS News in a press briefing with US Senator Bob Casey (D-PA) on December 14, 2023.

On December 7, Senior Scholar L. Randall Wray gave a talk titled "What is Finance? An MMT approach informed by the work of Keynes, Foster and Minsky" at the Université de Lille Post-Keynesian Conference, Economic Possibilities for Our Grandchildren–90 Years Later. Wray also gave a lecture titled, "Introduction to Origins and Nature of Money," at the Heterodox Economics Student Society at the University of Warsaw on Dec 9 and a presentation by the same name for the Modern Money Lab on January 16 for their Economics of Sustainability Lecture Series.

The Université de Lille Post-Keynesian Conference featured three other Levy Institute scholars. Research Associate Jörg Bibow delivered "The economic possibilities for our grandchildren: looking back and ahead," also available as a working paper here. Research Scholar Yeva Nersisyan presented "Does MMT Apply to Developing Countries?" Research Associate Eric Tymoigne spoke on "Consolidation and MMT policymaking," and Research Scholar Giuliano T. Yajima contributed to a talk titled, "Housing market, household debt, financial accelerator, and stagnation in a Super Multiplier Stock-Flow Consistent model."