June 13, 2024

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Strategic Analysis | June 2024

U.S. Economic Outlook: Prospects for 2024 and Beyond

Dimitri B. Papadimitriou, Gennaro Zezza, and Giuliano T. Yajima

In this report, Institute President Dimitri B. Papadimitriou, Research Scholar Giuliano T. Yajima, and Senior Scholar Gennaro Zezza discuss the rapid recovery of the US economy in the post-pandemic period. They find that robust consumption and investment and a relaxation of fiscal policy were the key drivers of accelerated GDP growth—however, the signs that the same rapid rate of growth will continue are not encouraging. In the authors’ assessment, projections relying on significant increases in private sector expenditures, including residential investment, are doubtful unless the relaxation of fiscal policy continues; both the household and corporate sectors will be deleveraging instead of increasing spending; the trade balance will continue along its same path in a deficit position; and the run up in the stock market carries significant downside risks.



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One-Pager No. 72 | May 2024

If Government Can Print Money, Why Does It Borrow? 

L. Randall Wray

Recently, the neglected question of why the US government borrows, given that it can print money, has arisen in the context of discussions surrounding a new documentary, Finding the Money. As Senior Scholar L. Randall Wray observes in this one-pager, Modern Money Theory has been providing answers to this question for some time; and, he argues, it is a topic that mainstream economists are ill-equipped to address, since very few concern themselves with the monetary operations that underlie the question of why a currency-issuing government issues debt.



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Working Paper No. 1053 | June 2024

Foreign Deficit and Economic Policy: The Case of Mexico

Arturo Huerta G.

Arturo Huerta G. analyzes Mexico under globalization, particularly on the free mobility of capital. He argues that globalization has detrimentally impacted the productive and external sectors, causing the economy to become excessively reliant on volatile capital inflows from abroad. The Mexican government—instead of undoing the structural problems that lead to external deficits—implements policies that resolve the short-term liquidity needs and go against economic growth, as if they are promoting capital inflows. The national currency has appreciated greatly and acts only in favor of the financial sector and in detriment of the productive and the external sector.

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Working Paper No. 1052 | June 2024

Exchange-Rate Stability Causes Deterioration of the Productive Sphere and Destabilizes Developing Economies

Arturo Huerta G.

For Matías Vernengo and Esteban Pérez Caldentey (2020), the MMT literature overemphasizes the choice of the exchange rate regime and the relevance of a flexible exchange rate regime, as well as the ultimate effect of that choice upon the policy space. In addition, they argue that the role of capital flows is underexplored, and that the relevance of the balance-of-payments constraint is often underestimated. Vernengo and Pérez’s criticism fails to consider that exchange-rate flexibility makes it possible to use flexible fiscal and monetary policies as well, to boost growth and employment, and to reduce the balance-of-payments constraint.



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Working Paper No. 1051 | May 2024

Euro Interest Rate Swap Yields: Some ARDL Models

Tanweer Akram and Khawaja Mamun

Tanweer Akram and Khawaja Mamun examine the dynamics of euro-denominated (EUR) long-term interest rate swap yields. They show that the short-term interest rate has an economically and statistically significant effect on EUR swap yields of different maturity tenors, after controlling for various key macroeconomic variables, and present several autoregressive distributive lag (ARDL) models of the dynamics of EUR swap yields. Examining the case of EUR interest rate swaps, the findings of the paper lend additional credence to John Maynard Keynes’s hypothesis concerning the ability of a central bank to influence long-term market interest rates.



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Working Paper No. 1050 | May 2024

Macroeconomic Effects of a Government Overdraft on Its Central Bank Account

Tarron Khemraj

The Guyana government, from 2015 to 2021, accumulated a large overdraft on its central bank account. It owed this overdraft to a binding debt ceiling limit and fractious political environment that prevented an increase in the ceiling, allowing for the auctioning of Treasury bills to create the liquidity reflux necessary to refill the account. In this paper, Tarron Khemraj studies the macroeconomic effects of reflux (one-sided sales of Treasury bills) and broken or incomplete reflux (base money expansion) by focusing on domestic inflation, the foreign exchange (FX) rate, and the quantity of FX traded in the local market. The empirical results suggest that the inflation rate is largely driven by foreign price and oil shocks.



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Working Paper No. 1049 | May 2024

Deindustrialization from the Center Perspective: US Trade and Manufacturing in the Last Two Decades

Nikolaos Rodousakis, Giuliano Toshiro Yajima, and George Soklis

Research Associate Nikolaos Rodousakis, Research Scholar Giuliano Toshiro Yajima, and George Soklis argue that the US trade and industry sector has experienced several unsustainable sectoral processes, including a fall in the trade balance in machinery and equipment and high-tech (HT) industries, a rise in import multipliers in machinery and equipment and HT industries, and others. To address these issues, the US must shift toward a more sustainable and value-added economy with a focus on innovation and investment in high-tech industries, renewable energy, and sustainable agriculture.



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Working Paper No. 1048 | April 2024

An Empirical Analysis of Swedish Government Bond Yields

Tanweer Akram and Mahima Yadav

Tanweer Akram and Mahima Yadav econometrically model the dynamics of Swedish government bond (SGB) yields. They examine whether the short-term interest rate has a decisive influence on long-term SGB yields, after controlling for other macroeconomic and financial variables, such as consumer price inflation, the growth of industrial production, the stock price index, the exchange rate of the Swedish krona, and the balance sheet of Sweden’s central bank, Sveriges Riksbank. Such findings reaffirm John Maynard Keynes’s view that the central bank’s monetary policy affects long-term government bond yields through the current short-term interest rate.



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A Levy Institute research report conducted under contract with the US Bureau of Labor Statistics (BLS) was referenced by the University of Minnesota Hubert H. Humphrey School of Public Affairs article, "What is the Value of ‘Women’s Work’? Humphrey School Researchers Find Answers." The research is also featured in the Marketwatch report "A $114,000 salary makes you feel poorer than your parents. These 6 metrics show why." The research, conducted by Institute scholars Ajit Zacharias, Fernando Rios-Avila, Nancy Folbre, and Thomas Masterson, focuses on on developing a methodology to incorporate household production into the consumer expenditure data currently collected by the BLS.

On July 30, 2024, Senior Scholar Thomas Masterson will be presenting at event for staff of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) at ECLAC's sub-regional headquarters in Mexico. He will be presenting his paper, "Assessing the Impact of Childcare Expansion in Mexico: Time Use, Employment, and Poverty," co-written with Senior Scholars Rania Antonopoulos and Ajit Zacharias and Research Scholars Luiza Nassif-Pires and Fernando Rios-Avila.

Research Scholar Pavlina Tcherneva was featured by the podcast Money on the Left on the April 1, 2024 episode "Economic Democracy with Pavlina Tcherneva."

The third edition of Senior Scholar L. Randall Wray's Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems is now available to buy digitally.

Levy Economic Theory and Policy MS Graduate, Brandon Istenes was awarded the 19th Annual AFIT-AFEE Student Paper Award from the Association for Institutional Thought for his paper "Sovereign Community Health Financing in Kenya."