Introduction

Introduction

  • Theoretical analysis: I favored the “Keynesian cross” version of Keynesian economics. (as opposed to say, IS-LM, or the Mundell-Fleming model)

  • This deck of slides will justify why I teach this particular version of the Keynesian model. I believe that it’s what explains the data best.

  • It also corresponds much more to Keynes’ original ideas I believe.

  • Although some implications of this type of thinking are close to mercantilism (e.g. Hobson) - which have been historically opposed to free trade.

Data

Exchange Rates

Current Accounts

Current Accounts

Net International Investment Positions

Effets of Fiscal Policy on Current Accounts

Idea

  • An Empirical method is used to isolate “fiscal shocks” using the narrative record.

  • I trace out the cumulative response to a 1% of GDP increase in taxes. (so a recessionary shock)

  • According to the model we’ve seen, it should lead to: lower investment, lower consumption, lower imports, and unchanged exports.

  • I will show you data coming from multiple different studies: Romer and Romer (2010) on the United States, Cloyne (2013) on the United Kingdom, Guajardo et al. (2014) on a sample of OECD Economies.

Romer, Romer (2010) - Paper

Romer, Romer (2010) - Replication

Cloyne (2013) - Paper

Cloyne (2013) - Replication

Guajardo et al. (2014)

Some U.S. Data

Exports, Imports (% of GDP)

Exports, Imports, Goods and Services (% of GDP)

Net Exports (% of GDP)

Exports in Goods and Services (Source: OECD)

Quotes from Keynes

Open economy

Four main sources of information:

  • Chapter 10 in The General Theory.

  • Proposals for a Revenue Tariff - March 7, 1931.

  • On the Eve of Gold Suspension - Sept 10, 1931.

  • Chapter 23 in The General Theory. (Keyes (1936))

Keyes (1936) - Chapter 10

Keyes (1931) - Proposals for a Revenue Tariff

Keyes (1931) - On the Eve of Gold Suspension

Chapter 23 of the General Theory

Keynes: Protectionist Policies?

  • In terms of the model we wrote: the idea is to influence \(m_1\): the propensity to import. Why? Because when you do a stimulus, you stimulate other countries too. By introducing a tariff, you may make other countries’ traded goods more expensive, and favor your own ones.

  • Of course, the problem is that it distorts trade, and can lead to crony capitalism (as some specific firms ask to be exempted from tariffs).

  • An alternative way to influence \(m_1\) is to do a devaluation: if prices do not move immediately in response, then you also make your own products more competitive by doing so. (as I said we’ve abstracted from exchange rate considerations)

Hobson - Imperialism

Surplus or Debtor Countries ?

A question of balance

Compulsory for the debtor, voluntary for the creditor

Graph

Compulsory for the debtor, voluntary for the creditor

Compulsory for the debtor, voluntary for the creditor